HMRC changes view on the company residence tie-breakers in certain double tax agreements

Mon 07 Dec 2015

HMRC has reached an agreement with Jersey concerning the interpretation of the company residence tie-breaker in the Jersey-UK 1952 double tax agreement.  This change also affects the interpretation of 15 other double tax agreements (DTAs) which have identical or very similarly worded company residence tie-breakers.

The issue concerns dual residents companies (companies which are tax resident in one territory because they are incorporated there, but which are also resident in another tax territory owing to being managed and controlled there).  In these situations, residency for the purposes of the DTA is determined by the tie-breaker article.

However, HMRC’s previous view was the UK/Jersey DTA did not include a company residence tie-breaker, meaning that a dual resident company (as outlined above) could not be ‘resident’ in one territory for the purposes of the treaty.  As a result, it would fall outside the scope of the treaty and hence be unable to benefit from it. 

HMRC now accepts that the wording of the affected treaties is such that they do, after all, contain a company residence tie-breaker.  A dual-resident company should therefore now be treated as a resident of the jurisdiction in which it is managed and controlled, for the purposes of applying the affected DTAs. In cases where the company is managed and controlled in both the UK and the other jurisdiction, it will remain outside the scope of the DTA.

The affected DTAs are: