What is Place of Effective Management (POEM) and how does it impact the tax residency of a company?

[alisha joy]

Place of Effective Management (POEM) is a concept used to determine the tax residency of a company, particularly if it is incorporated in a foreign jurisdiction. POEM refers to the location where the key management and commercial decisions required for the overall conduct of the company's business are actually made. According to the Income Tax Act in India, if a company’s POEM is in India for a given financial year, the company is considered a resident in India for tax purposes. This classification impacts the company’s tax obligations, as it will be subject to Indian taxation on its global income. POEM also acts as a tie-breaker rule in many tax treaties that India has entered into, helping to avoid double taxation by establishing a single country of residency based on where the company's effective management decisions are made.