Table of Contents
1. What is Place of Effective Management (POEM)?
- POEM is a place where the key management and commercial decisions which are necessary to conduct the business are made.
2. How to determine POEM?
- POEM is determined using two steps
- Active business outside India (ABOI) test &
- Board meetings
- POEM is said to be outside India if, the company passes the active business outside India (ABOI) test and the majority of board meetings are conducted outside India
3. What are the conditions that should be satisfied for a company to be engaged in Active Business outside India (ABOI)?
A company shall be said to be engaged in Active business outside India,
- If the passive income is not more than 50% of its total income, and
- Less than 50% of its total assets are situated in India, and
- Less than 50% of its total number of employees are situated in India or are resident in India, and
- Payroll expenses incurred on such employees is less than 50% of its total payroll expenditure.
4. What do you mean by Passive income for the purpose of ABOI Test?
Passive Income is the aggregate of
- Income from the transactions, where both purchase and sale is from/to an associated enterprise of the company, and
- Income by way of royalty, dividend, capital gains, interest or rental income whether or not involving associated enterprises.
5. Can interest received by a banking companies be treated as passive income?
- No, Interest income shall not be considered as passive income for a Banking Company and Public Financial Institutions.
6. What do you mean by total income for the purpose of ABOI test?
Total income is the income computed as per
- Tax laws of the country of incorporation.
- In case the tax laws of the country of incorporation does not require any computation, Total Income is the income as per the books of accounts.
7. What is value of Assets for the purpose of ABOI test?
- In case of depreciable asset, the value of the asset shall be the average of its value for tax purpose at the beginning and at the end of the previous years.
- In case of any other assets, the value of the assets shall be the value as per books of accounts.
8. How to calculate the total number of employees for the purpose of ABOI test?
- The number of employees would be the average of the number of the employee as at the beginning and at the end of the year.
- Employee also include the persons who are not directly employed in the company but perform tasks similar to those performed by the employee of the company. (eg. Contract employees)
9. What to calculate the total Payroll expenses for the purpose of ABOI test?
- Payroll includes the cost of salaries, wages, bonus and all other employee compensation including related pension and social cost borne by the employer.
10. How is the residential status of the company decided?
- All Indian companies are deemed to be resident.
- In respect of foreign companies,
- A company is said to be a non-resident if the POEM is outside India (i.e. ABOI test passed and majority of board meetings are held outside India)
- A company is said to be a resident if the POEM is in India (i.e. ABOI test failed)
11. The company has passed the ABOI test and the majority of board meetings are held outside India, but the decision making authority is not the Board of directors?
- If the company has passed the ABOI test and majority of board meetings are held outside India, the company is deemed to be a non-resident because the place of effective management is outside India,
- However, if the decision making authority is not the board of directors, the POEM shall be the place where the commercial and business decisions are taken.