Management and control - Keeping your company outside the UK tax net

Management and control - Keeping your company outside the UK tax net

London is a leading financial centre for global commerce. As people's lives and industry become increasingly international, those who travel to the City need to know how to conduct their business dealings to avoid falling inadvertently into the UK tax net.Companies that are resident in the UK are, generally, subject to UK tax. A company's country of residence is usually where it was incorporated. However, a non- UK company can still be UK tax resident if its central management and control (“CMC”) is in the UK. CMC is the strategic decision making of the company - its policy and direction, as opposed to certain day-to-day administrative functions.If CMC takes place in the UK, the company's profits are likely to fall within the UK tax net and be subject to UK Corporation Tax (subject to any applicable double tax treaty). It is therefore important to ensure that an appropriate governance structure is in place to mitigate against this risk.It is necessary to look at where the board of directors conducts its business. This is not necessarily where the board meets, but concerns who actually makes decisions, the relative autonomy of each director and how resolutions are actioned. Whilst in the UK, directors do not need to abstain from company matters altogether - they can be informed of developments and offer input and guidance but it is essential they make no substantive decisions or influence those that do.The UK revenue authority, HMRC, has the burden of demonstrating a company's CMC is in the UK and so liable to UK tax. It is increasingly looking to investigate high net-worth individuals who have offshore business interests. The UK Government is also prioritising the development of information exchange agreements with foreign jurisdictions.Practical measures to demonstrate that CMC takes place outside the UK include:Directors -• There should never be a majority or quorum of directors resident in the UK or present in the UK at the same time.• The chairman should not be UK resident if they have a casting vote.• Communications from UK persons should only take the form of recommendations or advice.Decision-making -• All directors' (and preferably shareholders') meetings take place outside the UK.• The majority of directors at any meeting should be non-UK resident.• Written board resolutions should be signed outside the UK.• Any powers delegated should only be to non-UK residents who act outside the UK.Company administration -• Contemporaneous documentation should be kept to confirm the exercise of CMC by directors outside the UK.• All company documentation should be drafted and kept outside the UK.• Company bank accounts should be maintained outside the UK.• The company secretary should be non-UK resident.• Appropriate provisions reflecting the aboveare incorporated in the company'sconstitutional documents.Liability to UK tax can also be triggered by a non-UK company having a 'permanent establishment' in the UK, having UK activities or investments, or by being dual resident in the UK and another jurisdiction.These are complex areas and legal advice should be taken if there is any doubt about their application.

Lucy Edwards is an associate in Pennington Manches' London private client team and a member of STEP, the world's leading organisation for private wealth professionals. She advises on a broad range of private client matters including succession planning and taxation for UK and international families and trustees, trustee fiduciary duties, the administration of trusts and estates, and domicile and residence issues including remittance and pre-immigration planning. The above article was published in India Inc′s print edition of the India Investment Journal launched in April 2015 in conjunction with the Global Wealth Management Conclave 2015.

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