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Corporate residence

A company is subject to corporation tax on its worldwide profits if it UK tax resident. It is UK tax resident if it is incorporated in the UK or its place of central management and control is in the UK. Central management and control is, broadly, where the highest level of control of the business of the company is exercised. It is usually therefore found with the company’s board of directors. While, other persons, such as controlling shareholders, can influence the board it should not affect the residence provided the board still make the actual decisions.

A recent tax case, held at the First-Tier Tribunal (“FTT”)  Developments Securities (No 9) Limited and others [2017] UKFTT 565 (TC) sheds further light on corporate residence. Development Securities Group entered into a scheme to mitigate UK tax which to work needed certain Jersey incorporated companies to not be UK tax resident.

The FTT considered, based on the specific facts of the case that “from the outset. In the act of agreeing to take on the engagement, the Jersey directors were in reality agreeing to implement what the parent had already at that point in effect decided to do”. The parent, rather than the directors, therefore exercised central management and control.

It is recommended that taxpayers with offshore companies review their residence status in the light of this case. In particular, as to whether or not there are commercial justifications for the directors making particular decisions and also as to whether or not the company was formed merely to perform a single act or carries on an ongoing function. 



Date: 4th August, 2017
Author: David Hadley


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