Private Wealth & Tax & Estate Planning & Trusts

Covid-19, Travel Restrictions, and Tax Residence of Companies: OECD Guidance Released


One of the consequences of the lockdowns being implemented in a number of countries – including the UK – as a result of the coronavirus pandemic is that normally internationally-mobile company directors find themselves stuck in one jurisdiction, unable to leave (or, at least, to do so whilst following official advice).

The personal consequences for affected individuals (such as enforced separation from family and colleagues) might seem bad enough – and that is where thoughts inevitably first turn.

Compounding that, are the personal tax implications. Though many countries have issued general guidance indicating that days spent during an enforced stay ought not to be counted when assessing whether a person is resident in that jurisdiction. For the UK Government, HMRC has issued such guidance, confirming that the “exceptional circumstances” provisions of the statutory residence test should apply, which is much to be welcomed: see here.

However, less attention has been given to the tax residence status of companies as a result of directors finding themselves stuck.

Like many countries, the UK treats a business as being resident in the UK if its place of “central management and control” is in the UK (provided that no applicable double tax treaty establishes its residence in another jurisdiction). Unlike the statutory residence test for individuals, these rules have been developed by case law over a long period of time (the leading case, De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes), dates back to 1906).

The “central management and control” of a company is the jurisdiction in which its strategic policy and management decisions are taken. Those decisions can be contrasted, for example, with less strategic operational decisions, and also the execution and implementation of decisions already taken elsewhere.

Directors forced to remain in the UK might not think twice about continuing their involvement in the business. E-mail, mobile phones, and video conferencing mean it has never been easier to work wherever you are. However, if that place is in the UK then care should be taken to avoid HMRC treating the company as being “managed and controlled” – and so tax-resident – here.

Other jurisdictions, such as Ireland, Australia and Jersey, have issued guidance confirming that their national revenue authorities will not seek to capitalise on the global dislocation caused by coronavirus by asserting that foreign companies have become resident there because of the actions of their directors.

HMRC has not – yet – issued similar guidance, and so company directors would be prudent to assume that existing UK rules on e-communication still apply. Whilst there is little direct judicial authority on the point, it is widely thought possible that a director who takes decisions in the UK – including through participation in board meetings – can inadvertently cause the company to become resident here.

Fortunately, on 3 April, the OECD released guidance for member countries (including the UK) on the application of tax treaty rules to the residence of individuals and companies – at least, insofar as double tax treaties are concerned. The OECD guidance confirms inter alia that “It is unlikely  that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty.”

It is hoped that the UK Government will accept the OECD’s timely and practical guidance and that HMRC will shortly issue updated guidance of its own confirming that directors forced to remain in the UK can continue their work without fear of making their business tax resident here.




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James Austen



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