Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

<b>Tax News:</b> Appeal court illuminates UK residency rules for companies incorporated overseas. By Nichola Ross Martin

by
10th Feb 2006
Save content
Have you found this content useful? Use the button above to save it to your profile.

A decision by the Court of Appeal has shed light on what is required to preserve non-UK residency for companies incorporated overseas who take advice from UK based tax advisors.

The Court of Appeal has ruled in favour of the taxpayers in the case of Wood and another v Holden (Inspector of Taxes) [2006] EWCA Civ 26 .

The case involved a complex scheme devised to avoid tax on substantial gains accruing to a husband and wife on the sale of their trading companies. Mr and Mrs R J Wood, were majority shareholders in Ron Wood Greetings Cards Ltd, and they set up Dutch companies to carry out certain transactions to ensure that the disposal of the companies was made between members of a non-resident group of companies, and so treated as taking place at no gain no loss. The gain was not attributed to the husband and wife under s.13 TCGA 1992 because s 14 excludes it.

The scheme had been designed by Price Waterhouse to avoid the tax on part of the substantial gain from the sale of the Wood's shares.

The court had to decide whether Park J, in the High Court was right in concluding that the off-shore companies were not resident in the United Kingdom for tax purposes. This reversed the Special Commissioner's earlier findings.

The common law test of corporate residence taken by the court was from De Beers Consolidated Mines Ltd v Howe [1906] AC 455, that "a company resides for purposes of income tax where its real business is carried on where the central control and management actually abides".

In this case there were two Dutch companies, the holding company CIL and Eulalia its subsidiary. The point at issue was whether Eulalia had become UK-resident by virtue of its central control and management.

The Revenue argued that Eulalia was resident in the UK because its sole director was told what to do by Mr. Wood and Price Waterhouse (Mr Wood's Accountants) and that it fell in with their wishes. In other words no real decisions were taken in the Netherlands. Further, the Revenue claimed that since Eulalia was only involved in order to carry out a tax scheme, there was never any possibility that Eulalia's sole director would prevent Eulalia playing its part in the tax scheme.
The commissioners previously found that the only acts of management and control by Eulalia were board resolutions and the execution of documents which were effected without any decision making. This led them to conclude that the actual effective decision making was taken in the United Kingdom.

Park J did not agree with this conclusion, and neither did the Court of Appeal judges.
He said: 'it is not the law that the test (of control) is superseded by some different test if the business of a company is such that not a great deal is required for central control and management of its business to be carried out."

In other words, it did not matter that Eulalia's director only performed some fairly routine tasks, what matters is that those tasks were the main acts of management and control. He did have to think about what he was doing and the Woods or Price Waterhouse for all their influence did not engage in those main acts for the purposes of the test of control and management.

Nichola Ross Martin

www.rossmartin.co.uk

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.