When is a company UK resident?
UK law provides that companies are resident for tax purposes if they are:
- incorporated in the UK; or
- incorporated elsewhere but managed and controlled in the UK.A recent case - Laerstate BV – concerned the residence of a Netherlands incorporated company. The owner moved to the UK. HMRC contended that the company was resident in the UK for tax purposes. The directors stated that acts of central management and control were carried out outside the UK. HMRC argued that the decisions were not made at board meetings; one dominant director, who was at all times the 100% shareholder, made all the decisions. That director was resident in the UK and so that was the place of effective management.
The judges found that the place of effective management (the real management of the company) was in the UK. The owner’s activities were concerned with policy, strategic and management matters throughout the time when he was a director of the appellant and also after he ceased to be a director. As his activities constituted real top level management of the company and the board’s activities were limited to signing documents when told to do so and dealing with routine matters such as account. Accordingly the company was resident in the UK.
It may not be (indeed may never have been) enough to have board meetings outside the UK ratifying decisions that are already made. HMRC are increasingly looking at what 'really' happens.
Date: 4th November, 2009
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