One of the best known judicial pronouncements in tax, possibly because it has been in use for over 100 years, is the one by Lord Loreburn in De Beers Consolidated Mines Ltd v Howe (5 TC 198) relating to deciding where a company is resident: ‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides.’
This statement was the culmination of several decades of judicial thought about how to apply a concept that applied to people, that of residence, to legal entities. If you wanted to call upon Lord Grantham, you knew where he resided, but what about railway companies? Their buildings and operations could be found in many parishes (those of you who remember the general commissioners will also remember that they were based upon parishes). So railway companies were based in the parish where the central management and control of their business was.
When you have what appears to be a simple and authoritative statement, there are issues that are a little more complicated than they first appear. This article looks at a few of the nuances relating to ‘central management and control’.
What are we doing here? The first nuance to be considered is what it is that is being centrally managed and controlled. The answer to that question is that it is the business of the company that is under consideration – the strategic rather than administrative decisions (Egyptian Delta (14 TC 119)). Agreeing the company’s accounts won’t make you resident, but deciding to take on Apple with your new invisible mobile phone will.
What do we have to do? The second nuance is that the level of activity needed is very low. Two cases of a similar vintage to De Beers – Ogilvie v Kitton (5 TC 338) and The Egyptian Hotels Ltd v Mitchell (6 TC 551) – provide that all that is needed is passive oversight and tacit control. If, like Mr Ogilvie, you receive reports from the managers of your business, but take no action beyond agreeing with those reports, then you are still exercising central management and control. Just don’t throw them in the bottom drawer unread! We would not advise relying on this aspect unless you have to. Explicit actions are always to be preferred!
How long do we have to do it for? Lord Loreburn used the term ‘abides’. This denotes some sort of longevity or permanence. Bringing this back to the comparison to a real person, a single decision in a place is not going to be enough, no matter how important it is. For example, you may have proposed to your husband or wife while on a romantic weekend break to Venice; that does not make you resident in Italy! Staying at your holiday home in Spain for the winter each year is though, another matter.
This does highlight the problems with analogies. A company may only have ever made one important decision. Another problem is that, like a person, it can be resident in more than one place. Still, you should be looking for some sort of long term connection for the central management and control of the business for reason to ‘abide’ there.
Who goes first? If you look carefully at the company residence cases that have gone to litigation, it is very rare that the assessment under appeal relates to the company whose residence is being queried. It is well known that unless the taxpayer can persuade the tribunal that an assessment is incorrect, the amount stands good. What is less well known though is that where HMRC is asserting that a company is resident in the UK, it has the initial burden of proof and must first prove it has the right to raise the assessment, before the taxpayer has to prove the assessment is incorrect.
What was that term again? The term always used is ‘central management and control’. Are these terms inseparable or, like Ant and Dec, only thought to be (we may be prejudging their future here a little)? Is it possible for management to be in one territory and control in another (arguably that was the situation in Ogilvie, but the case was not actually about company residence and the point didn’t need to be taken)? Perhaps by the time we reach the next century we will have an answer.
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Central management and control in the UK
One of the best known judicial pronouncements in tax, possibly because it has been in use for over 100 years, is the one by Lord Loreburn in De Beers Consolidated Mines Ltd v Howe (5 TC 198) relating to deciding where a company is resident: ‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides.’
This statement was the culmination of several decades of judicial thought about how to apply a concept that applied to people, that of residence, to legal entities. If you wanted to call upon Lord Grantham, you knew where he resided, but what about railway companies? Their buildings and operations could be found in many parishes (those of you who remember the general commissioners will also remember that they were based upon parishes). So railway companies were based in the parish where the central management and control of their business was.
When you have what appears to be a simple and authoritative statement, there are issues that are a little more complicated than they first appear. This article looks at a few of the nuances relating to ‘central management and control’.
What are we doing here? The first nuance to be considered is what it is that is being centrally managed and controlled. The answer to that question is that it is the business of the company that is under consideration – the strategic rather than administrative decisions (Egyptian Delta (14 TC 119)). Agreeing the company’s accounts won’t make you resident, but deciding to take on Apple with your new invisible mobile phone will.
What do we have to do? The second nuance is that the level of activity needed is very low. Two cases of a similar vintage to De Beers – Ogilvie v Kitton (5 TC 338) and The Egyptian Hotels Ltd v Mitchell (6 TC 551) – provide that all that is needed is passive oversight and tacit control. If, like Mr Ogilvie, you receive reports from the managers of your business, but take no action beyond agreeing with those reports, then you are still exercising central management and control. Just don’t throw them in the bottom drawer unread! We would not advise relying on this aspect unless you have to. Explicit actions are always to be preferred!
How long do we have to do it for? Lord Loreburn used the term ‘abides’. This denotes some sort of longevity or permanence. Bringing this back to the comparison to a real person, a single decision in a place is not going to be enough, no matter how important it is. For example, you may have proposed to your husband or wife while on a romantic weekend break to Venice; that does not make you resident in Italy! Staying at your holiday home in Spain for the winter each year is though, another matter.
This does highlight the problems with analogies. A company may only have ever made one important decision. Another problem is that, like a person, it can be resident in more than one place. Still, you should be looking for some sort of long term connection for the central management and control of the business for reason to ‘abide’ there.
Who goes first? If you look carefully at the company residence cases that have gone to litigation, it is very rare that the assessment under appeal relates to the company whose residence is being queried. It is well known that unless the taxpayer can persuade the tribunal that an assessment is incorrect, the amount stands good. What is less well known though is that where HMRC is asserting that a company is resident in the UK, it has the initial burden of proof and must first prove it has the right to raise the assessment, before the taxpayer has to prove the assessment is incorrect.
What was that term again? The term always used is ‘central management and control’. Are these terms inseparable or, like Ant and Dec, only thought to be (we may be prejudging their future here a little)? Is it possible for management to be in one territory and control in another (arguably that was the situation in Ogilvie, but the case was not actually about company residence and the point didn’t need to be taken)? Perhaps by the time we reach the next century we will have an answer.
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