Tempting as it may be, I will not delve deeper into the referenced story. Interested readers can easily search for it online. In any event, I am not privy to the details of the arrangement – whether they are right or wrong – and if I were I could not of course publish them in an article without the client’s permission. However, this high-profile example highlights once again the critical importance that should be attached to CMC when structuring companies or other entities internationally.

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Last April, Acquarius’ Managing Director, Oliver Andlaw, published a comprehensive analysis entitled Corporate Tax: Residency & Control Insights. Among the topics covered were his reflections on CMC which I think have not only maintained their significance over the last year but have become even more relevant to our industry. I thought it timely to revisit the subject, exploring it in greater depth in this latest piece.

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What do we mean by CMC? For ease, I am using as my example the UK as the “onshore” country and its domestic corporate tax arrangements. Let us say that the international (or “offshore”) vehicle is in Gibraltar, managed by Acquarius of course! The principles are broadly similar in most other countries anyway, although beware of differences that may exist elsewhere. 

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In simple terms, and continuing to use the UK as my example, a non-UK company may be considered UK resident, and thus liable to UK taxation, if its CMC is in the UK. Such control might include important “top level” or strategic matters affecting the overseas entity. HMRC would look to the type of decisions made “onshore” – and who makes them. If the directors reside in the UK and meetings are held there, it would be difficult to argue that the company is not subject to UK CMC. 

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Note though that control may also be exercised by someone other than a director. If that person is UK based then again, the company might be at risk of becoming UK resident for tax purposes – no matter where it is incorporated. 

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It is worth noting though that general day-to-day management of the business may not fall into this category even if done in the UK. If it can be shown that such management is in fact merely acting in accordance with the decisions of the board based overseas, then it is perfectly reasonable to do such work in the UK.

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To illustrate how these principles apply in practice, let us look at a typical scenario we see regularly at Acquarius. Suppose that an Indian entrepreneurial family is looking to invest in the UK – say by establishing a manufacturing business. As we have demonstrated in the past, a very reasonable solution might see the shares of the UK operating company owned by a Gibraltar holding (or international headquarters) company that stands alone or perhaps forms part of a wider structure.

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Provided the control of said Gibraltar company is not UK based, then the arrangement is not likely to fall under HMRC’s gaze. And as touched on above, the Indian family could appoint local managers in the UK to run the business day-to-day – along the lines set out by the directors abroad. 

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HMRC would look at where board meetings of the international company are held. Gibraltar company meetings would normally be held locally – this is, after all, a key part of Acquarius’ ongoing role. Directors may wish to “call in” from other places but, in our example, should not do so from the UK. Of course, a more complex arrangement may include underlying businesses in countries other than the UK. Similar CMC rules are likely to apply, and utmost care should be exercised. 

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This simple example belies the fact that this whole area is in fact increasingly complex. As always upfront independent tax advice is essential to ensure that a well-structured entity does not unwittingly fall foul of any onshore rules. 

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These fundamental concepts are key to understanding how international, or offshore, entities must operate in the modern business environment. I make no apology for keeping this simple as it is vital to understand these nuances from the outset. 

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In summary, ensuring that CMC remains firmly outside the UK - where appropriate - is not just best practice, it is essential. Missteps can be costly. Informed structuring and sound governance from the outset is key.

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This piece is merely for general information, and as always, most certainly not advice. For specific guidance on how your business, or that of your clients, might be managed, together with introductions to the right people who could assist, including the provision of tax advice, please contact us directly for a no-obligation discussion.