To ensure modern commercial board practices and international tax integrity rules are being followed, the Treasurer asked the Board of Taxation to conduct a review of the operation of Australia’s corporate tax residency rules.
The terms of reference set out by the Treasurer are for the Board to consider whether the existing rules:
- minimise commercial uncertainty and ambiguity;
- are consistent with and aligned with modern day corporate board practices;
- protect the tax system against multinational profit shifting; and
- otherwise support Australia’s tax integrity rules as they apply to multinational corporations.
In 2002, Treasury released a consultation paper “Review of International Taxation Arrangements” and noted that applying residency concepts to companies that are part of a multinational corporate group is difficult.
A significant difficulty with the central management and control test dates back to the Malayan Shipping Case from 1946. In Malayan Shipping case, Judge Williams J was required to determine whether a company incorporated in Singapore was an Australian resident under the central management and control test.
The company was incorporated in Singapore but carried on a business in Melbourne as an importer, shipping agent and general merchant. The registered office was in Singapore but Mr Sleigh, the shareholder and managing director resided in Australia. All high-level decisions were made in Australia.
In the Malayan Shipping case, it was conceded that central management and control was located in Australia, but it was argued that the relevant business of the company was not being carried on in Australia. (Shipping).
In TR 2004/15, the Australian Taxation Office (ATO) expressed a view that the comments of Williams J in Malayan Shipping did not represent a general proposition that the exercise of a company’s central management and control in a particular location is sufficient to establish that the company is also carrying on business in that same location. The ATO adhered to the view in TR 2004/15 until the High Court’s decision in the Bywater case.
Learn about the Bywater case and other important info regarding Corporate Residency through Effective PD’s webinar. To subscribe to Effective PD webinars, visit www.effectivepd.com.au. Effective PD offers an innovative way for busy accountants to be on top of their game with continuing professional development in a brief, flexible and easy way.
