How is company residence established and how do the courts view it?
This is a freeview 'At a glance' guide to company residence and how it is viewed by the courts.
The established test for company non-residence has evolved as modern working practices have changed.
- A company which is incorporated outside the UK will become UK resident if its Central management and control is based in the UK.
- The rule of thumb for tax planners has therefore been to ensure that all board meetings, decisions and resolutions are made offshore, as illustrated in Wood v Holden [2006] STC 443.
- In Laerstate BV v HMRC [2009] UKFTT 209 (TC) the FTT decided that company residency cannot be established on such simplistic terms as Wood v Holden and looked at where the company was conducting its real business, including contract negotiations and obtaining its advice.
- The 2017 case of Development Securities (No9) Ltd v HMRC took investigation of 'real business' a step further: a Jersey company was held to be UK resident on the basis that it undertook transactions as part of a capital loss scheme that were engineered by its UK parent. This supports the idea that the whole picture must be considered when considering company residency.
In the global economy, business can be conducted on a smartphone, tablet or computer from anywhere in the world. It is also quite easy to track the location of a sender of any electronic communication or text.
Businesses who are keen to stay offshore should have clearly defined policies in place to determine how and when their management business is conducted.
Useful guides on this topic
Companies: Permanent establishment & residence
What are the rules for determining a company's country of residence? What is central management and control? When does a company create a permanent establishment in another country?
Certificate of residence
Certificates of residence are often needed to ensure that double tax relief or treaty relief is accepted by a country in respect of particular income or profits.
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