Contact: Voisin (Isle of Man)
Jersey’s Taxes Office has reached an agreement with the UK tax authorities at HM Revenue and Customs (‘HMRC’) on the interpretation of the residence of companies under the 1952 Jersey - UK Double Taxation Agreement (‘DTA’).
Utilising the mutual agreement provisions contained in the DTA, it has been agreed that paragraph 2(1)(f) of the DTA should be considered as a residence tie-breaker test for companies which are regarded as resident in both jurisdictions under their relevant domestic tax rules.
Previously paragraph 2(1)(f) was not recognised as a tie-breaker test and therefore companies incorporated in the UK but managed and controlled in Jersey were treated as resident in both jurisdictions. However, under Jersey domestic legislation, companies incorporated in Jersey but centrally managed and controlled in the UK are treated as resident only in the UK.
Now, where the tie-breaker test applies, such companies should be treated as resident only in the jurisdiction where their business is managed and controlled. Though, as ever, there are other aspects to consider this means that such companies are only required to pay tax on most types of income in either Jersey or the UK, and not in both jurisdictions.
This agreement better reflects the originally intended meaning of paragraph 2(1)(f). Existing UK incorporated companies whose businesses are managed and controlled in Jersey, and which were previously viewed as resident in both jurisdictions under the DTA, should consider their position in light of this announcement as they may now be entitled to claim relief for UK tax. Any claim for relief under the DTA will be subject to the normal time limits applicable under Jersey and UK domestic law.
