The issue of a company’s residency was examined in the Australian High Court case of Bywater Investments Ltd; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45.

This case involved four companies, all incorporated outside Australia. Three of the companies claimed that they were resident in Switzerland as their board meetings were all held in Switzerland and hence central management and control was situated there. The last company claimed to be resident in Samoa for the same reason. The companies bought and sold shares listed in the Australian Securities Exchange and made a profit. However, they did not bring these profits to tax in Australia on the basis that they were not resident in Australia.

The High Court found that although the directors of the companies sat and made decisions outside Australia, the real business of the companies was conducted in Australia by an Australian resident accountant, Mr Vanda Gould. All the decisions pertaining to the profits arising from the purchase and sale of shares were made only by Mr Gould. The boards of directors exercised no independent judgement but merely rubber-stamped Mr Gould’s decisions. As such, the place of effective management of all the companies was actually with Mr Gould in Australia.

In contrast, the High Court referred to the case of Nominees Ltd v Federal Commissioner of Taxation (1972) 129 CLR 177 where the board of directors sitting outside Australia also followed the directions of an Australian accounting firm. In that case however, the directors of the company were in control of the company even though the Australian accounting firm was found to have the power to exert strong influence on the company. The directors independently assessed that the Australian accounting firm’s directions were in the interests of the beneficiaries, having regard to the tax position, before deciding to implement the directions.

The High Court reiterated that the residence of a company is first and last a question of fact and degree to be answered according to where the central management and control of the company actually abides. This is to be determined, as a matter of long-established authority, not by reference to the constituent documents of the company, but upon a scrutiny of the course of business and trading.

Editorial Note

This case serves as a reminder that the control and management of a company is not merely where the directors sit but where actual decision-making takes place. As such, if the business decisions of a company involve persons in another jurisdiction, care must be taken that the directors undertake independent assessment of such decisions instead of rubber-stamping the same.