Offshore Companies - Onshore Management And Control

Laerstate BV v HMRC

Although this is only a first instance decision it nevertheless gives an interesting indication of the extent to which activities can be carried on in the UK without resulting in an offshore company becoming UK tax resident Laerstate BV v HMRC The risk of an offshore company being treated as resident in the UK is one faced by many family structures. Concern arises where there are directors or shareholders resident in the UK or, in relation to offshore fiduciary structures, UK beneficiaries who could be regarded as having too much influence. These risks apply equally to businesses as well as family holding structures, investment vehicles and trust companies.

Management and control If the central management and control of an offshore company is carried out in the UK, then the company itself - and any trusts of which it is sole trustee - will be UK tax resident. 'Management and control' refers to the highest decision-making level, and need not even involve the directors themselves if the directors usually follow the effective instructions of another person, or if their decisions are overseen in some other way that inhibits their freedom. If there are directors, shareholders or beneficiaries in the UK, a key question is therefore whether they are seen to control the decision-making process from the UK, or whether the remaining or actual directors are able to make genuinely independent decisions and have the requisite skill and experience to act on their own authority. It is important to remember that there is a distinction between a company's management and its administration (e.g. keeping of the company's books and records and filing the requisite forms with the authorities). A company can be managed and controlled from the UK even if it is administered from outside the UK. The essential question rather is where the fundamental decisions about the company are taken: it can be enough that the directors signed the relevant resolutions outside the UK (even on advice from UK advisors) so long as this act itself amounts to the free exercise of their discretion, and their role as directors has not effectively been usurped by some other person. Conversely, it is not enough to provide a paper trail if all that is happening is effectively a rubber-stamping exercise.

Laerstate BV v HMRC These questions were recently considered in the First Tier Tribunal in the case of Laerstate BV v HMRC. The case concerned a dispute about the UK...