Under domestic law provisions, a company is an Australian resident if it is incorporated in Australia, or if it not incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.
The question of whether a company which was incorporated outside Australia had its central management in Australia was recently considered by the Federal Court.
In this case the Commissioner had made default assessments against the taxpayer companies on the basis that they were Australian residents. The companies argued that that the place of central management and control was in various overseas locations (Apia in Samoa, London or Neuchâtel in Switzerland) because this is where their directors met or where the actual decisions about the share transactions in question were made.
However the Commissioner argued that these structures are entirely formal and that, in truth, it was the companies’ accountant in Australia who was pulling all of the strings from Sydney.
This was denied by the Company who said that the accountant was only an adviser but they argued that it did not matter anyway because the issue of central management and control is to be decided by reference to where the decisions of the taxpayers, as a matter of formality, were made.
The general principle is that a company is resident where its central management and control actually abides and that this is where its real business is carried on. However the Courts have said it is not always easy to apply this principle in complex factual situations.
In one High Court decision it was said that the central management and control of a company usually abides where the directors meet to do the business of the company. However in another case central management and control of the company was held to abide in the managing director of the company and not where the formal meetings of the directors were held because the managing director exercised complete management and control over the business operations and the internal administration of the company.
In a further decision, the High Court held that is the place where the actual decisions are made that is crucial and the fact that the directors who make those decisions may be influenced, even to a great extent, by advice and suggestions received from elsewhere, is immaterial. In this case the extent of the influence of the Melbourne accountants was shown by the fact that they would not infrequently prepare in detail the agenda of a meeting of the directors of the company or meetings of the company itself. Nevertheless, it was stated that even if it be accepted that the company did what the Melbourne accountants told it to do it did not follow that the control and management of the company lay with the Melbourne accountants.
Nevertheless despite the similarities with the above decision of the High Court, the Federal Court in this case held that central management and control of the companies on the facts was in Sydney Australia because the directors of the companies exercised no independent judgment in the discharge of their offices but instead merely carried into effect the accountant’s wishes in a mechanical fashion.
There appears to be a fine line between when the influence of advisers may result in central management and control changing from where the directors hold their meetings to where the advisers reside.