 Corporate non-UK residence claims
HMRC’s International Manual includes guidance relating to companies claiming non-residence in the UK and provides a useful reminder of the approach that companies and HMRC must take in respect of such claims.
Claims for non-UK residence often arise where the UK and another country both claim that the company concerned is resident in their territory. In order to resolve this conflict, double tax agreements (DTAs) often include a tie-breaker clause which determines in which territory a company is to be considered resident. The manual includes a list of DTAs (up to date as at 1 December 2009) signed by the UK which have a residence tie-breaker clause.
Where the tie-breaker clause refers to the company’s ‘place of effective management’ and the UK and overseas tax authorities disagree over the application of this concept, the company may face double taxation and must then seek a resolution under the mutual agreement article of the relevant treaty. In the meantime, the company must continue to self-assess its position. If it is confident that it is not UK resident then it may choose not to file tax returns during the mutual agreement procedure. However, if the company is eventually found to be UK resident it may then be liable to back-dated tax, interest and penalties.
Where a company claims non-UK tax residence HMRC will, as a matter of course, request a copy of a certificate of residence from the overseas tax authority. The Inspector must satisfy him or herself that the company should be regarded as resident overseas under the tie-breaker clause in the relevant DTA. The Inspector will also want to establish where the business of the company is carried on. If this is in the same territory in which the company has claimed residence, the claim is usually allowed. Where the Inspector finds that the business is carried on in a third country, he or she will investigate where the place of effective management of the company is. If the Inspector cannot establish that the place of effective management is in the territory in which the company is claiming residence, he or she may continue to treat the company as UK resident.
Where the company succeeds in demonstrating that it has migrated from the UK by virtue of transferring its place of effective management, the company must comply with the provisions of section 109B TMA 1970 give notice of migration. This section requires that the company provides HMRC with:
· notice of the time that the company intends to cease residence in the UK
· a statement of the amount of tax it believes is payable in respect of periods beginning before that time (including PAYE and income tax it is required to deduct at source) and
· details of the arrangements in place for payment of that tax.
HMRC may dispute the amount of tax outstanding and may refer the matter to the Tax Tribunal. Once the amount of tax outstanding has been agreed, the company must put arrangements in place to pay the tax and HMRC must approve those arrangements.
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