Central Place of Management and Control Revisited
Wed 15.3.2017 the Australian Taxation Office released a Draft Taxation Ruling TR2017/D2 – Foreign Incorporated Companies: Central Management and Control test of residency. It revisits the long and established principles expounded by the Commissioner of Taxation in TR2004/15 Income tax: residence of companies not incorporated in Australia – carrying on business in Australia and central management and control, which was withdrawn on the same day.
The new draft ruling comes hot of the heals of 2 recent wins by the Commissioner of Taxation and sets out the Commissioner’s considered view on how to apply the central management and control test of company residency following the Commissioners successful High Court wins in Bywater Investments Limited & Ors v FCT; Hua Wang Bank Berhad v FCT  HCA 45.
The former position was suggestively basic, relying on the second statutory test in the definition of ‘resident’ or ‘resident of Australia’ in subsection 6(1) in the Income Tax Assessment Act 1936 (ITAA 1936) to determine the question of residency and central management and control. By example for a company to be a resident under the second statutory test two separate requirements had to be met.
The first is that the company must carry on business in Australia, and the second is that the company’s central management and control (CM&C) must be located in Australia. CM&C involved a focus on the who, when and where of strategic decision making for a company was undertaken.
Generally speaking, as long as the high-level decisions of the company were made at specific board meetings, the fact that less pressing business of the board is often conducted by circulating resolutions did not impact on the location of CM&C. The former ruling went through multiple examples of where CM&C might domicile and its conclusions were clinically based. The New Draft Ruling endeavors to cast a wider net of preconditions and considerations for CM&C.
TR2017/D2 considers 4 matters to be fundamentally relevant in determining whether a company meets these two criteria:
(1) Does the company carry on business in Australia? (see paragraph 4 of this draft Ruling)
(2) What does central management and control mean? (see paragraph 6 of this draft Ruling)
(3) Who exercises central management and control? (see paragraph 13 of this draft Ruling)
(4) Where is central management and control exercised? (see paragraph 26 of this draft Ruling)
The Ruling further states that a company will be controlled and directed from where those making its decisions do so as a matter of fact and substance. It is not where decisions are merely recorded and formalised or where the company’s constitution, bylaws or articles of association require it be controlled and directed. Identifying who exercises central management and control is now more so a question of fact. A company will be controlled and directed where those making its decisions do so as a matter of fact and substance. The relevance and weight to be given to the question of CM&C will depend on the facts and circumstances of each case.
The Commissioner of Taxation viewpoint in the Ruling will apply from 15 March 2017 to all deemed Australian Taxpayers to the extent that it does not conflict with the terms of any settlement or dispute agreed to before the issue of the Ruling.
Submitted by Noé Vicca, Vicca Chartered Accountants.www.viccaca.com
TR 2004/15 Income tax: residence of companies not incorporated in Australia – carrying on business in Australia and central management and controlATO’s website
TR2017/D2 Foreign Incorporated Companies: Central Management and Control test of residency ATO’s website
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