You should read this if you own or are advising a US business which is tax resident in the UK. A company that is tax resident in the UK will be chargeable to corporation tax on all of its worldwide profits and gains at a rate of 23% (this rate will be reduced to 21% from 1 April 2014 and falling to 20% from 1 April 2015). A company that is not tax resident in the UK will only be liable to corporation tax if it carries on a trade in the UK through a permanent establishment. A non-resident company may also be liable to UK income tax on non-trading income.
Tax residence is therefore important as it determines the scope of the charge to corporation tax. The tax residence of companies is one area where it is easy for companies inadvertently to fall on the wrong side of the line.
HMRC (the UK’s taxation authority) has had some success in establishing that offshore companies were UK tax resident. In 2009, the First Tier Tax Tribunal heard the case of Laerstate B.V., concerning the tax residency of an offshore company. The Tribunal found that an offshore company was, in fact, UK tax resident and its profits taxable in the UK.
In response to HMRC’s success, the government set out its intention to investigate companies claiming to be offshore when Dave Hartnett, then Permanent Secretary for Tax at HMRC, said, “Some companies claim to have changed their residence and left the UK. Investigation and litigation in the UK will establish that.” We are now seeing increased scrutiny by HMRC into the tax residency of offshore vehicles.
If this is of interest to you then please read the full article on Tax residency of offshore vehicles.