INTM120060 - Company Residence
Company residence: the case law rule - central management and control
The place of central management and control as a test of residence is now relevant only to
- companies not incorporated in the UK and
- UK incorporated companies which qualify for exception to the incorporation rule, so long as their place of central management and control is outside the UK
The case law rule
The case law rule for determining the residence of a company is
authoritatively expressed in Lord Loreburn's speech in De Beers
Consolidated Mines Ltd v Howe, 5TC213:
'A company resides … where its real business is carried
on … and the real business is carried on where the central
management and control actually abides'.
The De Beers company was incorporated in South African and
its main trading operations were there. The controlling board of
directors exercised its powers in the UK. The company was held to
be resident here.
The rule was endorsed in the much later case of Bullock v
Unit Construction Co Ltd, 1959, 38TC712. The African subsidiary
companies which were incorporated and trading in Africa were held
to be resident in the UK by reason of the degree of management and
control over their businesses exercised in the UK by the parent
company. The constitution of each subsidiary company vested control
in its board of directors which was required to hold its meetings
outside the UK. The Special Commissioners found that, in fact, the
directors 'were standing aside in all matters of real importance
… affecting the central management and control' and that the
real control and management was being exercised, albeit
unconstitutionally, by the parent company's board of directors in
the UK.
The decisions in both the De Beers and Unit Construction
cases make it clear that the place of central management and
control is primarily a question of fact. Both cases also
demonstrate that it is the highest level of control of the business
which counts. That control may be exercised by the board of
directors in accordance with the Articles of the company, as in De
Beers. Or, by some other person, for example, a parent company or
individual shareholder who has in fact assumed management and
control of the business, as in Unit Construction.
Divided or multiple residence
The De Beers test points to a single country of residence. But
the courts have recognised that, exceptionally, a company may have
a dual or multiple residence. Lord Radcliffe's speech in the Unit
Construction case, 38TC739, is a useful commentary on this subject.
There are some companies for which it is not possible to identify
any one country as the seat of central management and control.
Management and control may be divided or may change from place to
place even. The De Beers test as such cannot be applied.
No general rule for establishing the residence of these
companies has been established. But if, in the context of the
company's business, what is done in the UK amounts to part of the
management and control, the company is arguably resident here. The
decision in the Swedish Railway Company v Thompson, 9TC342, should
be interpreted in this way. The company was not engaged in active
trading and its administrative control was divided between this
country and Sweden. The Courts decided that the company, while it
might be resident abroad, was nevertheless also resident here for
tax purposes.
Dual residence was also considered in Union Corporation Ltd v
CIR (1953), 34TC207. The company was admitted to be resident in the
UK. The dual residence issue was whether it was also resident
abroad. The view of the Court of Appeal was that a company is
resident wherever 'to a substantial degree' acts of controlling
power and authority are exercised. But the case was decided on
another issue and the House of Lords did not consider the question
of dual residence.
Further guidance
Further guidance on the central management and control test was given in the International Tax Handbook and the relevant chapter 'Company Residence: the Law' is now reproduced at INTM120150.
