There is a risk that Covid travel restrictions might make non UK tax resident companies or trusts UK tax resident.
I recently attended a Zoom meeting of UK tax lawyers involved with international tax issues. One agenda item concerned UK tax resident directors of non UK tax resident companies where because of COVID-19 UK tax resident directors are not travelling abroad to attend in person board meetings.
The concern tabled is that hitherto non UK tax resident companies might become UK tax resident for their current accounting period ending on e.g. 31st December exposing such companies (amongst other things) to UK corporation tax on their world wide income and gains to 31st December 2020.
UK case law has held that the test of company residence is ‘where the central management and control actually abides’ (see Lord Loreburn in De Beers Consolidated Mines v Howe (5 TC 198). In broad terms this concept of central management and control is directed at the highest level of control of the business of a company. It is distinguished from the place where the main operations of the business are to be found. Successive decisions have
– emphasised that the place of central management and control for the accounting period is wholly a question of fact; and
– attached importance to the place where the company’s board of directors meet insofar as those meetings constitute the medium through which central management and control is exercised.
The location of board meetings, although important in the normal case, is not necessarily conclusive. Lord Radcliffe in Unit Construction pointed out [(1959 38 TC 712 at p738)] that the site of the meetings of the directors’ board has not been chosen at ‘the test’ of company residence. In some cases, for example, central management and control is exercised by a single individual. This may happen when a chair or managing director exercises powers formally conferred by the company’s Articles and the other board members are little more than ciphers, or by reason of a dominant shareholding or for some other reason. In those cases, the residence of the company is where the controlling individual exercises his/her powers.
HMRC has not issued any guidance that covers non UK tax resident companies that might inadvertently become UK tax resident. If you think anything written here might have relevance to you/a company you are involved with please get in touch. I have a lot of experience of working in this area and am confident I can assist.
Similar (but different) issues arise for hitherto non UK tax resident trusts that may become UK tax resident to 5th April because trustee meetings are de facto taking place here and not abroad. If you are a trustee of such a trust please get in touch.