Central management and control during Covid-19
With strict international travel restrictions in place due to the COVID-19 pandemic, those who are on the board of a non-UK resident company will need to be particularly alert to the UK test for the ‘central management and control’ of a company to ensure that the company is not inadvertently brought into the UK tax net.
This test could be of particular significance for directors of Private Trust Companies (PTCs) which are the sole trustee of a family trust or where they are on the board of a non-UK company.
Those affected should review the implications for themselves, the company and (if the company is a PTC) the trust itself.
- Review the composition of the board: where is each director and what ability (if any) do they have to travel; does the composition need to change?
- Review corporate governance and particularly rules around decision making: does the company’s constitution permit video and teleconferencing for board meetings?
- Consider risks of making strategic decisions by virtual meetings: are UK directors in the minority, how often are strategic decisions made, can they be deferred?
- Consider changing constitution so a meeting is not quorate unless UK directors are in the minority.
- Review impact of certain companies in a group being treated as UK tax resident.
- Be aware of exit taxes if a company (or trust) becomes temporarily UK resident.
- Know what the corporate tax residence rules are in each relevant jurisdiction.
It is recognised that none of the tips above is ideal and each case will need to be considered on its own facts in order to manage the risk of falling within the UK test of central management and control.
The big unknown remains how long we will all remain subject to the current travel restrictions. Even after the curve has flattened and we are over the worst of the pandemic there is likely to be a prolonged period before the ease of global mobility returns. If there needs to be a one-off strategic decision made in the UK make that decision one which protects the corporate residence of the company.
For more information about the test itself, please click here to read our latest briefing note.
Finally, where a director is non-UK tax resident but finds themselves stranded in the UK and unable to return to their home jurisdiction, they will need to determine if they can rely on ‘exceptional circumstances’ in the UK statutory residence test. HMRC have recently updated their guidance due to the COVID-19 outbreak. Further information can be found here.
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