Matthew Popham, Corporate Tax Specialist, provides a historical perspective on the recent Bywater/Hua Wang Bank case.
In Back to the Future, Marty McFly was trying to get back to 1985. And whilst we need not look back that far, some historical reflection can provide useful guidance when considering how best to respond to the recent decision in the Bywater/Hua Wang Bank case.
The High Court in that case held that companies incorporated overseas had their ‘central management and control’ in Australia and were therefore Australian tax residents and liable to tax in Australia. This was on the basis that the real business of the companies was undertaken by an accountant in Sydney, whose instructions were rubber-stamped by the overseas board of directors in Board meetings held overseas.
This case and its findings have distinct parallels with a Dutch tax case from 10 years ago. It is a stark reminder that merely holding board meetings in the overseas location is not sufficient. In the Dutch tax case, some of the key considerations of the judges involved:
As with many other tax authorities in this new Base Erosion Profit Shifting (BEPS) World, the Australian Taxation Office (ATO) has a renewed focus on the issue of residency. Therefore, for groups with overseas holding companies, it will be important that appropriate documentation is maintained to support the position in the event of an ATO challenge. This can include: