HMRC defeated in corporate residence case

07 June 2019

The Development Securities case caused a real stir in the tax community in August 2017 when HMRC successfully argued that a number of Jersey companies were tax resident in the UK.  

In a nutshell, the First-Tier Tribunal found that Jersey directors who had relied on directions from a UK parent company in relation to implementing a loss-making transaction had effectively ceded control of the companies to their UK parent.

The Upper Tribunal decision, which has just been published online, reverses the outcome – finding that the Jersey companies remained resident in Jersey, and not the UK, for tax purposes.

The new decision brings some welcome clarity on the crucial issue of the extent to which a parent company (or anyone else) can influence a company without taking over control from its directors.

The Upper Tribunal was satisfied that the Jersey directors had not abdicated their responsibilities, and had not ceded control to someone else, in circumstances where they:

  • knew exactly what they were being asked to decide;
  • did so understanding their duties; and
  • complied with those duties.

Given HMRC’s recent strong track record in avoidance cases, this is an unusually robust decision in favour of a taxpayer.  

With corporate residence still a key area of focus for HMRC, we should expect to see a further appeal.

For our coverage of the earlier, First-Tier Tribunal decision, see: