Tax and Incentives e-update - November 2009

Laerstate - Revising Corporate Residence

Lawyers Robert Young

Introduction

UK taxpayers with existing interests in offshore companies, or who may be considering the use of offshore companies, and UK companies seeking to minimise tax by locating abroad, should be aware of the possibility of an offshore company being treated as resident in the UK and hence falling within the UK corporation tax net.

Under established common law principles, the place of "central management and control" of a company is generally considered to be determinative of a company's residence.  The 2006 case of Wood v Holden (Inspector of Taxes) provided a welcome reiteration of the core principles to be applied in determining where the central management and control of a company incorporated outside the UK is performed.  However, the recent first tier tribunal decision in Laerstate BV v Revenue and Customs Commissioners has been remarked upon by media and commentators as suggesting that HMRC may take a tougher line in future in assessing offshore corporate residence and that the courts may be shifting against taxpayers in their considerations of such cases.

This e-update seeks to clarify the situation and in doing so, to emphasise that Laerstate does not give rise to any change in the law or the advice that should be delivered to taxpayers considering the establishment of offshore companies.