Companies have independent legal personalities and, just like people, they can be domiciled in one place and resident in another. That point arose in a case in which the Upper Tribunal (UT) ruled effective a tax avoidance scheme that depended upon the involvement of three offshore companies.
An English-registered property investment company had, after taking accountancy advice, entered into what it candidly admitted was a tax planning or tax avoidance scheme. The objective was to obtain loss relief for the purposes of Corporation Tax on chargeable gains realised on the disposal of certain assets. To that end, the investment company established three wholly owned subsidiaries in Jersey.
Being registered on the island, there was no dispute that the subsidiaries were domiciled there. However, the effectiveness of the scheme hinged on whether they were also resident in Jersey during a critical period of about six weeks. HM Revenue and Customs (HMRC) argued successfully before the First-tier Tribunal that the subsidiaries had been resident in England throughout, and that the scheme therefore failed.
In upholding a challenge to that decision brought by the investment company and other members of its group, the UT found that the subsidiaries’ central management and control (CMC) had been exercised exclusively in Jersey during the critical period and that their residence therefore coincided with their domicile.
The UT accepted that the scheme included elements of artificiality, in that its sole purpose was to produce tax benefits. Save in that respect, the transactions entered into by the subsidiaries could be viewed as commercially pointless. However, their directors had properly considered their shareholders’ interests and could not be said to have acted as mindless puppets, simply following the investment company’s instructions come what may. It was impossible to argue that they had abdicated their responsibilities to the extent that the subsidiaries’ CMC vested in their parent company.
