COVID-19 Impact on Corporate Tax Residence and Substance: Investment Funds and Multinationals
- Travel restrictions and social distancing measures
imposed as a result of the crisis mean that non-UK companies are at risk of
becoming tax resident in the UK or breaching substance requirements if board
meetings are held or decisions taken without careful forethought. This could
have long term consequences.
- Similar issues were encountered, albeit on a
significantly smaller scale, during the Icelandic volcanic ash cloud episode of
2010 when many planes were grounded and directors could not travel. If it is imperative that board meetings are
held during the current crisis when directors cannot travel and attend in
person then any resulting tax risks will need to be carefully managed.
- Emergency measures to relax board meeting and substance
requirements, for example in Luxembourg and the Channel Islands, do not automatically
mean that all tax risks are avoided.
- While there has been a concession announced in the UK
in relation to the statutory residence test for individuals, HMRC has not yet
made any similar announcements in relation to the residence test for companies.
- Businesses are asking various questions about what they
should do now to to manage residence and substance risks in view of the crisis.
For example, what happens if a director
is unable to travel to a board meeting in person due to the travel restrictions
and instead dials in from their home jurisdiction? Would that result in the company becoming tax
resident in the director’s location?
What steps should be taken to mitigate tax risks if board meetings need
to be held? Can directors based in the
UK and other taxing jurisdictions sign documents? These, and other questions commonly being
asked, are set out below.
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