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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