Tax & Accounting News

New Ruling On Corporate Residence

29/10/2009

Foreign-owned companies or subsidiaries that operate in the UK may find themselves more likely to be subject to UK tax, following a recent court ruling.

The Laerstate case saw a First-Tier Tribunal rule in favour of HM Revenue and Customs (HMRC), when it argued that the Dutch company was UK-resident, and therefore subject to UK corporation tax on the disposal of a shareholding.

Laerstate argued that its central management and control were exercised at board meetings held outside the UK, but the tribunal ruled there was insufficient evidence of this, and that a UK-based director exercised his powers to make decisions on the company’s behalf whilst in the UK.

The ruling contrasted with previous decisions from the higher courts that management and control of a company was generally exercised through its board of directors. It is expected that HMRC will now bring more cases to the First-Tier Tribunal where it is not clear where management is being carried out.

Companies which want to retain non-UK resident status should ensure that all board meetings are held overseas, and that these meetings are where key decisions are taken. UK-resident directors should ensure they attend board meetings in person and do not conduct company business in the UK.

Offshore companies wanting to avoid an HMRC investigation may wish to review their decision-making procedures to ensure all decision-making takes place abroad, and that there is the correct documentation in place to prove it.

For more information please contact us.