Overseas companies may seem a low cost solution... but are they?

Often UK financial services businesses will advise entities that are not resident in the UK. A company is resident in the UK if it is incorporated or managed and controlled in the UK.

What is management and control?
There is no UK statutory definition of what management and control is, so we must rely on case law. At its most basic level, management and control of a company might be considered to exist where the board meets. Whilst this is probably a good starting point, a better test might be to consider where the ‘mind’ of the board sits.

Where can it go wrong?
As is often the case with non UK incorporated entities, many boards consist of directors who, while resident in the jurisdiction of incorporation, often also sit on a number of other company boards, meet infrequently, and could, in certain circumstances, be argued to be merely ‘rubber stamping’ decisions that were actually taken in the UK.

The risk that the management and control of a company incorporated outside of the UK could be argued to be undertaken in the UK is increased if UK based individuals are seen to usurp the overseas board. The risks are further increased when UK directors attend board meetings electronically whilst in the UK rather than being there in person.

If this sounds familiar, it may be difficult to maintain that the ‘mind’ of your board is wholly outside of the county of incorporation, therefore there is a risk that such a company could be argued to be UK resident for tax purposes and subject to UK corporation tax. 

What should you do?
To establish and maintain that the company’s management and control is indeed within the correct tax jurisdiction you must ensure:
• the board retain the sole authority to bind the company;
• the board has the power to say no;
• any advisors are be paid an arm’s length basis;
• the board takes active decisions and does not simply ‘rubber stamp’;
• the board meets regularly with full minutes kept;
• directors do not prepare for meetings in the UK;
• particular care is taken when a UK resident director sits on the board;
• any UK resident directors does not usurp the board directly or indirectly; and
• all directors’ resolutions are signed in the country of incorporation.

How we can help
If you have an international element to your group structure or your group has been around so long that you don’t fully understand why certain companies were actually incorporated in the first place, perhaps a health check is order!

Our dedicated financial services Business Tax team of industry experts provides advice to investment managers, hedge funds and private equity business. We can advise on your statutory requirements and the most efficient ways of fulfilling these obligations, as well as advising on the most tax-efficient structures and ensure all available reliefs are utilised.

For more information on the tax services we provide, or to discuss how your business might be affected by the issues raised above, please contact us.

 

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