Is a subsidiary of a foreign company a "UK tax presence" for PAYE Regs

Is a subsidiary of a foreign company a "UK tax...

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My client is a UK resident director of a foreign company. For PAYE Regulations purposes, he has to operate PAYE (using "Direct Collection" procedures) on his earnings from abroad if the employing body has no "presence" in the UK. He has been doing this on his director's fees from the foreign company. Payment of employer's NI is voluntary and, not surprisingly, his foreign employer has opted not to make such payments.

He is now about to start work for, and become a director of, a UK subsidiary of that foreign company in addition to continuing as a paid director of the parent. PAYE will be operated in the usual way on his earnings from the UK subsidiary.

My question is, does the UK subsidiary constitute "a presence" of the foreign company in the UK? It is my view that the UK subsidiary does not have an obligation to deduct PAYE relating to earnings for work done for its parent but I should appreciate other practitioners' views. EP8116 does not specifically address the subsidiary issue in these circumstances.
Angela Williams

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By thehaggis
11th May 2007 19:21

There are many permutations here.

Firstly, Director’s Fees are likely to be only chargeable in the country in which the Company is registered, assuming we have a DTA with that country.

Director’s fees are, of course, different to earnings from an employment (a directorship is an office, not an employment). If he has been carrying out duties of an employment in the UK, in addition to the duties of a director, then it all depends on how he represents himself. If he has always worked at the offices of the subsidiary, and for all intents and purposes he is regarded as a representative of the subsidiary, the subsidiary is responsible for PAYE on all his earnings. This applies even although not all the earnings are paid by them.

If he has always put himself across as a representative of the overseas company, one might question if, through him, that company has a presence in the UK. One could even suggest that the company is trading in the UK – depending on what he is doing for them. It is of course unlikely that the foreign company will trading in the UK and therefore effectively competing with its UK subsidiary. What then is he doing for the foreign company other than looking after its interests within the UK subsidiary?

It can be very difficult to show that his employment with the UK company is removed from the employment with the overseas company. I would say that all earnings will be caught by the UK company’s PAYE responsibilities.

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