With directors of companies potentially stranded abroad due to coronavirus (COVID-19), but business still needing to continue, board meetings may be held with directors joining remotely. This could potentially impact on where the central management and control (or effective management) of those companies is located.
While most UK incorporated companies are resident in the UK regardless of the location of central management and control, a few companies that are usually UK resident (for example, those incorporated outside the UK but managed in the UK) still fall under the central management and control case law test for residence.
CTA 2009, s 14
Central management and control is often a question of fact and will depend on a number of criteria. A significant factor in assessing this test can be the location of board meetings. However, HMRC guidance at INTM120130 indicates that while the site of board meetings is important, it is not determinative. Indeed, INTM120140 and INTM120150 reflect HMRC’s view that occasional UK board meetings, or participation in such meetings from the UK, does not necessarily result in central management and control abiding in the UK. A summary of HMRC’s approach to company residence in response to the coronavirus pandemic is set out at INTM120185.
It should therefore be considered on a case-by-case basis whether a director not situated in the UK at the time of the meeting should join a particular board meeting and ensure that the chair of the meeting is in the UK. Similar considerations but in reverse should take place for a company that is not UK resident but has directors in the UK.
For companies that may be affected, this issue should be considered for each board meeting, and contemporaneous minutes evidencing the location of directors attending meetings should be kept. It is unlikely that a single meeting will tip the balance regarding residency, but as travel disruptions are likely to continue for several months, this concern may become more relevant over time.
Companies may also need to consider whether directors are permitted to attend board meetings virtually, or from particular locations, under their articles of association. There may be specific provisions (in the articles or elsewhere) that provide for exceptional circumstances, but this needs to be considered on a case-by-case basis. An example that companies could consider is: delegating the powers of the Board to other individuals who are UK resident for the duration of the outbreak.
It is also worth noting that even if a company is found to be centrally managed and controlled in the UK, this does not necessarily mean that the company will be UK resident. If the company is also treated as resident in another country and there is a double tax agreement between that country and the UK, corporate residence will be determined by the relevant tiebreaker provision in the treaty. It may be that after consideration of activity in both territories, the company will not be treated as UK resident.
HMRC has published guidance confirming that it does not consider that a company will necessarily become resident in the UK because a few board meetings are held here, or because some decisions are taken in the UK over a short period of time. HMRC will take a holistic view of the facts and circumstances of each case.
It should be borne in mind that travel restrictions could also have transfer pricing consequences for companies. This could, for example, be the case where corporate governance arrangements have been rearranged, thus permitting greater decision making in the UK. These additional UK based services will need to be factored into appropriate transfer pricing and cross-border recharging processes within the group.
For further details on the residence of companies, see the Residence of companies guidance note and Simon’s Taxes D4.104.