The government has said that General Anti-Avoidance Rules (GAAR) and Place of Effective Management (POEM) will be implemented from April 1, 2017 and added that cannot be delayed any more. On GAAR, Revenue Secretary Hasmukh Adhia has said that it seeks to prevent companies from routing transactions through other countries to avoid taxes. He also said that tax department feels that the adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules. He also noted that under GAAR, the taxmen may potentially want to know whether the transaction was done in the normal course of business or conducted simply with the intention to avoid taxes.
In clarification on implementation of POEM, Adhia said that it requires foreign companies in India and domestic firms with overseas subsidiaries to pay local taxes based on where the business is effectively controlled but will not apply to companies having a turnover or gross receipts of Rs 50 crore or less in a financial year. He also said that this would help target shell companies, or holding companies, incorporated overseas to evade taxes by showing their residency as a tax haven even though the management and effective decision-making takes place in India.
Explaining further he said that POEM is not for Indian companies doing genuine business outside. It is for those companies which are creating structures outside the country, mainly to get passive income from stocks and investments. He also said that POEM guidelines make it clear that if you have got active business outside India, POEM will not apply. He also highlighted that if out of the total income, 51 per cent comes from active business outside India, and even if 49 per cent comes from passive business then also POEM will not apply.