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HMRC's view on Company Residence under the Double Taxation Agreement

HMRC's view on Company Residence

On 30 November 2015, HMRC announced that they had reached an agreement with Jersey about the interpretation of the company residence provisions, in the 1952 Jersey-UK Double Taxation Agreement (DTA). This agreement reflects a change in view, with their interpretation now being that the treaty includes a tie-breaker clause to decide where a company is to be treated as resident for the purposes of the DTA. HMRC’s previous view was that a dual-resident company was not a resident of either jurisdiction under the terms of the provisions, and so was outside the scope of the DTA.


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HMRC have also reviewed other DTAs with identical or similarly-worded provisions (these tend to be older treaties) and have concluded that these also include a tie-breaker clause to decide where a company is to be treated as resident.  This change in interpretation affects 16 DTAs in total including Guernsey, the Isle of Man and Greece.

The above change in interpretation may have a significant impact on companies incorporated in the UK but managed and controlled in the Isle of Man.  Such companies will now be treated as Isle of Man resident under the IOM-UK DTA.  As a result they will also be treated as non-UK resident under UK domestic law.  Prima facie, this could mean the preclusion of UK group relief surrenders by the company (where the ‘dual resident investing company’ rules were not previously considered to apply) or even a taxable migration of the company out of the UK (presumably at any time management and control was transferred to the Isle of Man). 

The transfer of asset abroad provisions may also apply in respect of assets transferred by individuals to the company to the extent that there has been a change in management and control (from the UK to the Isle of Man) at some point in the company’s history, ie UK resident shareholders may inadvertently become liable to UK tax on all the income and capital gains arising within the company irrespective of whether or not they actually receive anything.

If you think that this change interpretation will affect you and/or your clients, please feel free to contact us for more detail as the exact analysis will depend on the specific facts and circumstances of the company in question.”

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