Revenue And Customs v Development Securities Plc & Ors

For corporation tax residence, a company is resident where its real business is carried on: the place where central management and control actually abides. The inquiry is factual and concerns the actual management of the company, not where it ought to be managed or where it is incorporated.

A parent’s tax plan, strategic influence or expectation that a subsidiary will act in a particular way does not alone transfer central management and control. The question is whether the subsidiary’s constitutional organs actually made the relevant decisions, or whether their functions were usurped or an outsider dictated the decisions. An appellate tribunal must respect primary and inferential findings of fact unless there is an identifiable error justifying intervention.

The Commissioners appealed from the decision of the Upper Tribunal (Tax and Chancery Chamber), comprising Marcus Smith J and Judge Guy Brannan, reported at [2019] UKUT 0169 (TCC). The Upper Tribunal had allowed the respondents’ appeal from the First-tier Tribunal and held that central management and control of three Jersey companies was exercised in Jersey.

The companies had been incorporated in Jersey to implement a group tax-planning scheme involving the acquisition of assets at prices exceeding market value. The First-tier Tribunal had found that the Jersey directors acted on what they regarded as an instruction from the UK parent, subject only to checking legality, and had not engaged with the substantive decisions. It therefore held that the companies were UK-resident. The central issue was whether the Upper Tribunal had correctly understood and lawfully displaced those factual findings.

1. Appeal allowed. The Upper Tribunal was not justified in setting aside the First-tier Tribunal’s decision for the reasons it gave. The First-tier Tribunal’s decision was restored.
2. The governing principle, from De Beers Consolidated Mines Ltd v Howe [1906] AC 455, is that a company resides for tax purposes where its real business is carried on, namely where central management and control actually abides. This applies to subsidiaries and special purpose vehicles. Residence depends on the actual place of management, not the place where management ought to occur, and is essentially a question of fact.
3. Central management and control may be exercised outside the jurisdiction of incorporation where the constitutional organs are bypassed or their functions are usurped, or where an outsider dictates decisions. Mere proposal, advice, influence, implementation of a parent’s tax plan, or decisions taken with incomplete information does not suffice. Events before or after the relevant date may cast light on the position at that date.
4. The Upper Tribunal materially mischaracterised the First-tier Tribunal’s reasoning. The First-tier Tribunal had not decided that the directors acted improperly, that the transactions were inadvisable, or that entering into them breached their duties. Its findings were that the directors proceeded on the basis of what they perceived as an instruction from the parent, after checking legality, without engaging with the substantive decision. Whether that was legally described as authorisation or ratification was beside the point; the factual finding concerned what the directors actually did.
5. The Upper Tribunal also failed to respect the First-tier Tribunal’s detailed factual findings. Findings based on inference remain findings of fact, and appellate restraint applies particularly where the conclusion involves evaluating primary facts. The approach in JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176 and Henderson v Foxworth Investments Ltd [2014] UKSC 41 was applicable.
6. The Court did not need to decide the Jersey company-law issues or whether authorisation under article 74(2) of the Companies (Jersey) Law 1991 was necessary. Those issues were beside the tax-residence inquiry, and the Upper Tribunal had no expert evidence enabling it to assess possible differences between Jersey and English law.

Nugee LJ agreed that the Upper Tribunal’s criticisms were unsustainable but expressed reservations about the First-tier Tribunal’s reasoning. He nevertheless accepted that, in the absence of a respondent’s notice, the appeal had to be allowed and the First-tier Tribunal’s decision restored. David Richards LJ agreed with Newey LJ and had no concerns about the First-tier Tribunal’s decision or reasoning.

• Court of Appeal (Civil Division): Appeal allowed. The Upper Tribunal’s decision was set aside and the First-tier Tribunal’s decision restored.
• Upper Tribunal (Tax and Chancery Chamber): Appeal from the First-tier Tribunal allowed; it held that central management and control of the Jersey companies was exercised in Jersey: [2019] UKUT 0169 (TCC).