Author: Kurt Baker
The Australian Taxation Office (“ATO”) recently issued final ruling TR 2018/5 setting out the Commissioners position on how to apply the central management and control tests when determining the tax residency of a foreign company.
The ruling and its accompanying draft practical compliance guidance, is a direct response to the decisions in Bywater Investments Limited and Hua Wang Bank Berhad cases and sees a change in the historical interpretation of provisions that have been in play since 2004.
The ATO has outlined the following three-step process for determining the location of a company's central management and control:
1. Identify the high-level decisions of the company. Broadly these are related to setting company policies and the strategic direction of operations as distinct from day-to-day management decisions;
2. Identify the persons who make those high-level decisions. Generally, this will be the directors of the company however may extend to people who do not necessarily have the legal power or authority to do so under Corporations Law; and
3. Determine where those persons physically make those high-level decisions. Importantly, no single factor alone will dictate this but will be influenced by the location of meetings, books and records, registered office etc.
It will be important that foreign corporate entities, who may have otherwise considered themselves to be non-resident of Australia for tax purposes, review these new interpretations by the ATO given they are likely to become a focus area for future enquires on review. Having detailed records, appropriate supporting documentation of decisions and the reasoning behind the same will be required as part of an entity or groups tax compliance moving forward.
If you have any questions regarding these changes, please contact your ESV engagement partner on 02 9283 1666.
