HMRC enquired whether a business, a company incorporated offshore, was being run by an individual or individuals in the UK.
The taxpayer, who was both resident and domiciled in the UK, was the sole director of the company incorporated offshore, with his wife the only other employee of the company who maintained the books and records. HMRC were suggesting that he must have been making all the necessary decisions to manage the company in the UK and that the profits of the company should therefore be taxed in the UK. The challenge for us was to establish whether HMRC’s analysis was correct and ensure that the company’s UK tax affairs were complete and correct.
How did we help?
We began by reviewing the methodology of the company’s operations and established that the business involved supplying goods manufactured in the USA to customers in the Middle East. The Middle Eastern customers insisted that in order to do business, the company director needed to travel to the Middle East to negotiate the deals personally. As a result, all the company’s contracts were both negotiated and signed in the Middle East. In addition, the company’s director travelled to the USA to collect the goods and delivered them personally to the customers.
HMRC agreed that the contracts were negotiated and signed outside the UK, with the goods being sourced, sold and delivered outside the UK. On that basis they accepted that all material decisions in regard to running the company were made outside the UK and that despite the sole director being a UK resident, the company was not a UK tax resident thus saving approximately £2 million in Corporation Tax.
This was a very unusual case, and the reason that HMRC were initially concerned was clear. However, perseverance in establishing and demonstrating the facts ensured that the right outcome was achieved.
Would you like to know more?
If you would like to learn more about management and control of offshore companies, please get in touch with your usual Blick Rothenberg contact or a member of our Tax Risk & Dispute Resolution team listed on this page.
You can also visit our Tax Risk & Dispute Resolution page for more information.