Indian cos with foreign units fear domestic tax implications

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Many Indian companies with foreign subsidiaries whose directors or senior executives are stranded in India due to the pandemic are now worried that they may have domestic tax implications under the place of effective management (PoEM) rule. Under the PoEM regulations, overseas subsidiaries could be treated as domestic entities for tax purposes if they are controlled and managed from India.

In most cases, senior executives would travel to other countries where the subsidiaries are located, for some time every year, especially for board meetings. However, amid Covid-19, many executives and directors are now unable to travel resulting in a situation where tax officials could construe that the decisions concerning the companies were made in India.

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