INTM120120 | Company residence: when to question residence

From HM Revenue & Customs · International Manual

Most commonly, the residence of a company will need to be questioned when it is apparent or suspected that

its residence status is part of an arrangement to obtain substantial UK tax advantages, which are not countered by the controlled foreign companies legislation, and
there is reason to believe that its central management and control is not where it is alleged to be.

Some of the situations where a company’s residence status should not normally be accepted without question are described below.

The residence of a company claiming UK residence should be investigated in the following circumstances:

Circumstances	Comments
A UK owned company is or has been carrying on business solely or mainly abroad.	The purpose may be to obtain group relief for losses. If it has made profits as non-resident, it may be trying to bring accumulated profits into the UK in tax free form.
The company is foreign-owned and there is an obvious UK tax advantage.	A holding company for a UK sub-group may have substantial charges to set against the profits of the trading group. But creation of a UK group is not of itself a reason to question the residence of the holding company.
The company is foreign-owned and appears to be acting as a conduit for income arising overseas which is passed on to an associated non-resident.	The object may be to avoid withholding tax in the country of source of the income by claiming an exemption under the double taxation agreement between that country and the UK which would not be due if the income went directly to the non-resident.

The residence of a company claiming to be non-resident should be investigated in the following circumstances:

Circumstances	Comments
A UK-owned company carries on business in the UK (whether trading or investment).	The purpose may be avoidance of tax on overseas income, on charges specific to close companies or a charge on capital gains on assets not used in the UK trade.
A UK-owned company carries on business abroad and there may be a diversion of income from a UK resident company.	The controlled foreign companies provisions may be relevant (INTM200000 onwards) but enquiries on residence may also be appropriate.
A foreign-owned company carries on business solely or mainly in the UK.	Some advantage may be obtained from branch status.