POEM In India? CBDT Issues Final Notification On Tax Consequences!

• Foreign companies having POEM in India placed at a disadvantage as compared to domestic Indian companies.
• A foreign company shall continue to be treated as a foreign company even if it is said to be resident in India as per the POEM test.
• Tax rate for a foreign company to remain the same, i.e. 40% (exclusive of surcharge and cess) even where it is deemed to be an Indian resident company.
• Transactions of foreign companies to remain unaltered on the basis of such companies becoming India resident on account of the POEM test.

Recently, the Central Board of Direct Taxes ("CBDT") issued final Notification under Section 115JH of the Income-tax Act, 1961 ("ITA") which provide tax consequences on a foreign company said to be resident in India due to its place of effective management ("POEM") being in India ("Notification").¹ This Notification is applicable from the financial year 2016-17.