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UK: Entities found to be Jersey, not UK, tax residents

UK: Entities found to be Jersey, not UK, tax residents

The Upper Tribunal overturned a decision of the First-tier Tribunal in a case concerning whether certain wholly owned Jersey incorporated subsidiaries of a UK property development and investment group were resident in the UK for corporation tax purposes. The Upper Tribunal found in the taxpayer’s favour that the Jersey incorporated special purpose vehicles (SPVs) were centrally managed and controlled in Jersey at the material times and were not, therefore, UK tax residents.


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The case considered the issue of applying the “central management and control” test to foreign incorporated SPVs set up as wholly owned subsidiaries by a UK-incorporated and tax resident parent company. The Jersey-incorporated companies had entered into call option arrangements with UK group companies to crystallise latent capital losses without losing the benefit of indexation allowance. To be successful, the arrangement required the Jersey-incorporated companies to be tax resident in Jersey for a specific period.

HM Revenue & Customs contended that the companies were instead resident in the UK during this period and denied the claims to indexation allowance. The First-tier Tribunal rejected the taxpayer’s claim, finding that the transaction was not in the interests of the Jersey companies and therefore that the board was simply doing what the parent wanted it to do.

The Upper Tribunal overturned the lower court’s decision, and rejected the First-tier Tribunal’s primary basis for concluding that central management and control was exercised in London (and not in Jersey) on concluding that the lower court’s decision represented a fundamental misunderstanding of the nature of the transactions entered into by the Jersey companies and of the duties of the Jersey directors in relation to those transactions.

Read a June 2019 report prepared by the KPMG member firm in the UK

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