On 30 November 2015, HMRC announced that it had changed its reading of the residence articles in 16 of the UK’s double tax treaties (DTTs) including those with Jersey, Guernsey and the Isle of Man.
Previously, HMRC regarded companies resident in both the UK and the corresponding DTT partner jurisdiction (dual-resident companies) as resident in neither country and therefore outside the scope of the relevant DTT.
HMRC now views these 16 DTTs as including a so-called “tie-breaker” article so that a dual- resident company will be treated as resident for DTT purposes in the country where it is managed and controlled. Companies managed and controlled in both states remain, in HMRC’s eyes, outside the scope of the relevant DTT.
This change will mostly affect UK-incorporated companies that are managed in the other DTT country. They will now be treated as resident in the DTT partner country (and not in the UK) for the purposes of the DTT. Non-UK companies managed in the UK should not, however, be affected as they remain UK resident for both DTT and domestic UK law purposes.
To view HMRC’s announcement, click here.