UK and International Tax news

HMRC Approach To Company Residence In Response To The COVID-19 Pandemic

Thursday 30th April 2020

HMRC has recently confirmed its approach to the rules on company residence in response to the COVID-19 Pandemic.

The COVID-19 pandemic has resulted in significant disruption to international travel and business operations, including the locations of directors, employees and other individuals.  HMRC has been asked about its response to the corporate residence challenges posed by COVID-19 given foreign companies, of which individuals may be directors or employees, could become UK tax resident.

HMRC has responded and considers that the existing legislation and guidance in relation to company residence already provides flexibility to deal with changes in business activities necessitated by the response to the COVID-19 pandemic.

HMRC has confirmed that it does not consider that a company will necessarily become resident in the UK because a few board meetings are held in the UK, or because some decisions are taken in the UK over a short period of time. HMRC advises that it will take a holistic view of the facts and circumstances of each case.

Where the central management and control of a company actually abides is a question of fact. HMRC takes the view that whilst the site of board meetings may be important in determining where central management and control abides, it is not determinative.  Each case turns on its own facts and circumstances which makes it difficult for HMRC to provide definitive guidance as to where central management and control may abide in cases where businesses are forced to make changes in response to the COVID-19 pandemic.

HMRC‘s International Manual provides further guidance and makes clear that HMRC’s view will depend on the facts in particular situations. In addition, where central management and control does abide in the UK, this does not necessarily mean that the company will be UK resident. If the company is also considered to be resident of another territory with which the UK has a double taxation agreement, the corporate residence tie-breaker provisions may result in the company being treated as non-UK resident.

Most of the UK’s double tax agreements include a place of effective management or a competent authority based tie-breaker. The place of effective management can only be in one place at any one time. As such, even if central management and control started to abide in the UK to a sufficient enough degree to result in UK residence under UK domestic law, it may be that, after consideration of the activity in both territories, the place of effective management may be found to be in the other territory, and the company will therefore be treated as non-UK resident.

The OECD has also issued its analysis of tax treaties and the impact of the COVID-19 crisis and this is reported in our next International Tax News item.

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