“To be or not to be” – resident in the UK – useful guidance for directors of Jersey companies
In this briefing, I have attempted to consider two useful cases which deal with residence of non-UK companies for tax purposes.
In general, it is well established that companies are UK resident for taxation purposes if they are either incorporated in the UK or their central management and control is exercised in the UK. The concept of control & management is well known in the offshore industry however it is useful to reiterate what that means:
“The residence of a company is determined by the place where its real business is carried on.”
This statement on its own does not really assist directors of Jersey companies in understanding what practical steps they should take to demonstrate that real business is carried on in Jersey.
In that context, it is therefore useful to look at two recent cases where non-UK incorporated companies have been found to be UK resident for tax purposes, despite all board meetings being held outside of the UK.
Laerstate BV v HMRC [2009] UKFTT 209
- This case concerns a Dutch company; Laerstate, which was wholly owned by Dieter Bock who was also one of the two directors during the relevant period between 1992 and 1996.
- Mr Bock used Laerstate to acquire shares in Lonrho Plc of which Mr Bock was the CEO in the early 1990s. Subsequently, in 1996, Laerstate disposed of the shares in Lonrho Plc at a profit.
- HMRC sought to recover capital gains tax on the disposal of the Lonrho shares on the basis that Laerstate was, at all relevant times, UK resident.
- Laerstate case considers the application of the corporate residence test in two scenarios (i) when Mr Bock was one of the two directors of Laerstate and (ii) after Mr Bock had resigned as director of Laerstate prior to the sale of the shares in Lonrho.
The evidence produced during the hearings showed the following:
- The articles of Laerstate allowed each director to individually bind the company in dealings with third parties;
- Some board meetings were held during the relevant periods however, these did not concern matters of overall policy and strategy of the company;
- All activities that led to the purchase by Laersate of the shares in Lonrho were conducted by Mr Bock individually;
- The other director, Mr. Trapman, was not provided with drafts of any relevant documentation he was signing; and
- Finally, travel records of Mr. Bock indicated that he undertook most of his management activities whilst in the UK.
By Mirek Gruna, Managing Director