Back to the Future to support company residency

Back to the Future to support company residency

Matthew Popham, Corporate Tax Specialist, provides a historical perspective on the recent Bywater/Hua Wang Bank case.

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KPMG Australia

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In Back to the Future, Marty McFly was trying to get back to 1985. And whilst we need not look back that far, some historical reflection can provide useful guidance when considering how best to respond to the recent decision in the Bywater/Hua Wang Bank case.

The High Court in that case held that companies incorporated overseas had their ‘central management and control’ in Australia and were therefore Australian tax residents and liable to tax in Australia. This was on the basis that the real business of the companies was undertaken by an accountant in Sydney, whose instructions were rubber-stamped by the overseas board of directors in Board meetings held overseas.

This case and its findings have distinct parallels with a Dutch tax case from 10 years ago. It is a stark reminder that merely holding board meetings in the overseas location is not sufficient. In the Dutch tax case, some of the key considerations of the judges involved:

  • a review of the information made available to directors prior to the board meeting
  • whether the directors were given sufficient time prior to the board meeting to thoroughly review that information
  • the length of the board meeting (as an indicator of the level of discussion held)
  • whether the above was commensurate with the importance and impact of the decisions being made.

Renewed focus on residency

As with many other tax authorities in this new Base Erosion Profit Shifting (BEPS) World, the Australian Taxation Office (ATO) has a renewed focus on the issue of residency. Therefore, for groups with overseas holding companies, it will be important that appropriate documentation is maintained to support the position in the event of an ATO challenge. This can include:

  • ensuring that board meetings are held overseas, with minimal directors dialing in to the meeting. The ATO do have access to immigration information to confirm whether individuals did travel to the relevant country
  • ensuring that proper board meeting packs are prepared and retained, that provide a full briefing to directors on the issue(s) to be decided upon, with sufficient information to enable them to make an informed decision
  • providing the briefing packs sufficiently ahead of time to enable them to be properly reviewed prior to the board meeting
  • ensuring that board meeting minutes appropriately reflect the discussion and not just the conclusion and also evidence that sufficient time was spent discussing the matters in hand.

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