How central management and control can turn an overseas company into a UK tax resident – even when every board meeting takes place abroad

Angelo Chirulli, FCA, ADIT, TEP

September 2026

VECTIGALIS TAX | INTERNATIONAL TAX THOUGHT LEADERSHIP

At 9:02 on the second Thursday of each quarter, the directors met in a conference room outside the United Kingdom.

The agenda was orderly. The resolutions were professionally drafted. The minutes recorded that the directors had considered the commercial position and approved the proposed course of action. No director joined from London. No signature was applied in the United Kingdom.

The meeting usually lasted less than half an hour.

By then, however, every important decision had already been made.

The pricing had been agreed in London. The annual budget had been negotiated in London. The decision to enter a new market had been made in London. The foreign directors received the final board pack shortly before the meeting and were asked to approve a recommendation that the UK management team had already begun to implement.

The board met abroad. The company did not necessarily reside there.

That distinction is where a corporate residence review begins.

The label

The group chart described the company as the “foreign principal”. It was incorporated overseas, maintained a registered office there and had locally resident directors. It owned the intellectual property, contracted with key customers and reported the entrepreneurial profit.

The UK subsidiary was described as a routine service provider. It employed the senior commercial team and received a cost-plus return.

The model looked conventional. The documents were consistent with one another. For several years, no one had asked whether they were also consistent with the way the business was actually directed.

The question arose during a wider tax review. It was initially framed as a permanent establishment issue: had the activities of the UK team created a taxable presence for the foreign principal?

That was a sensible question, but it was not the first one.

Before asking how much profit should be attributed to a UK permanent establishment, the group needed to establish whether the foreign principal was, in fact, non-UK resident. If its central management and control was exercised in the United Kingdom, the analysis might not be about a foreign company with a UK branch at all. It might be about a UK-resident company whose worldwide tax position had been built on the wrong premise.

Incorporation is the beginning, not always the answer

A company incorporated in the United Kingdom is generally UK resident under the incorporation rule, subject to the effect of an applicable double tax treaty. A company incorporated outside the United Kingdom may nevertheless be UK resident under the common-law test if its central management and control is exercised here.

The classic formulation asks where the company’s real business is carried on, in the sense of where the highest level of management and control actually abides.

This is not the same as asking:

1. where the largest number of employees works;
2. where the day-to-day administration is performed;
3. where the accounting records are held;
4. where the directors formally sign resolutions; or
5. where the company would prefer to be resident.

Those matters may be evidence. None of them is a substitute for identifying who really makes the decisions that direct the business as a whole, and where that authority is exercised.

Central management and control is therefore an intensely factual test. The constitutional documents establish who ought to control the company. The factual enquiry establishes whether those persons genuinely do so. If they do not, the analysis follows the person or body that has assumed the controlling power in practice.

A board can accept advice. It cannot outsource its own judgment.

The existence of strong shareholders, a group strategy and detailed recommendations from executives does not, by itself, make a subsidiary UK resident.

A competent board is entitled to receive advice. It can approve a well-developed proposal. It does not need to reopen every calculation or invent an alternative strategy merely to demonstrate independence. A parent company may monitor performance, set group-wide policies and exercise the rights that properly belong to a shareholder.

The line is crossed when the board ceases to decide and begins merely to record decisions made elsewhere.

The indicators rarely appear in a single dramatic document. They emerge from the chronology:

• commercial terms are agreed before the board sees them;
• contracts are treated as binding before formal approval;
• the board receives one completed proposal rather than a genuine choice;
• directors lack the time, information or expertise required to evaluate the matter;
• dissent is practically impossible because implementation has already begun;
• material decisions are repeatedly taken between meetings by individuals in the United Kingdom; and
• the board minutes describe deliberation that is not supported by emails, draft papers or the conduct of the parties.

The legal problem is not that the minutes are short. It is that the minutes may be the only place in which the supposed decision exists.

Why overseas board meetings can provide false comfort

The location of board meetings can be important when the board possesses and exercises the controlling power at those meetings. But geography cannot convert ratification into decision-making.

If the directors are acting on instructions, or if the real decisions are made collectively outside the meetings, the booked conference room and travel records do not determine residence. Conversely, the presence of UK-based executives does not automatically make the company UK resident if they operate within properly delegated authority and remain subject to genuine control by an overseas board.

The correct review therefore looks beyond the meeting calendar. It examines what happens before, during and after each material decision:

Before the meeting: Who identifies the issue, develops the options and decides which recommendation will be presented? When is the board informed? Has the business already committed itself commercially?

During the meeting: Do the directors understand the proposal? Do they test the assumptions, request further information, amend the terms or postpone the decision where necessary?

After the meeting: Does implementation follow the board’s decision, or does the paperwork merely catch up with action already taken elsewhere?

The most revealing evidence is often found outside the formal minute book: email chains, messaging platforms, approval workflows, customer correspondence, treasury instructions, recruitment decisions, pricing files and the successive drafts of board papers.

An organisation that focuses only on the location of signatures may preserve the appearance of foreign residence while documenting the opposite conclusion everywhere else.

The treaty does not make the domestic issue disappear

A company may be resident in two jurisdictions under their respective domestic laws. In that event, the precise wording of the applicable double tax treaty becomes critical.

Some treaties retain an objective tie-breaker, often based on the place of effective management. Many modern or MLI-modified treaties instead require the competent authorities of the two states to determine the company’s treaty residence by mutual agreement, taking account of the relevant facts and circumstances.

That process should not be treated as an automatic escape route.

Under section 18 of the Corporation Tax Act 2009, a company that is UK resident under domestic law may be treated as non-UK resident where an applicable treaty awards residence to the other jurisdiction. Where the treaty uses a competent-authority tie-breaker, however, that outcome may depend on an actual bilateral determination. The factors considered can extend beyond the formal location of board meetings to central management and control, effective management, business activities, employees, premises and the company’s wider economic connections.

The company must also continue to meet its self-assessment obligations while the residence position is being determined. A potential treaty claim is not a basis for postponing the analysis or ignoring filing obligations. If the treaty position remains unresolved, the group may face uncertainty over treaty benefits as well as the risk of taxation in both jurisdictions.

Even where treaty residence is ultimately awarded outside the United Kingdom, the UK activity does not vanish. A permanent establishment may remain, and the profits properly attributable to that establishment must still be determined.

Residence and permanent establishment are connected questions, but they are not interchangeable ones.

The consequences are wider than an additional corporation tax return

If an overseas company is found to have been UK resident, the consequences can reach across the group structure.

Worldwide profits and historic compliance

A UK-resident company is generally within the charge to UK corporation tax on its worldwide profits, subject to the detailed rules, available exemptions, double tax relief and the applicable treaty. The group may need to identify when UK residence began, reconstruct historic tax computations and consider filing, payment, interest, penalty and time-limit issues.

The residence conclusion may have changed during the period. A business can evolve from genuine overseas direction to UK control as founders relocate, management roles expand or the foreign board becomes progressively less active. It is therefore unsafe to assume that a single answer applies to every accounting period.

The transfer pricing narrative

If the entity described as the foreign entrepreneur is actually UK resident, the transfer pricing model requires a fundamental review.

The issue is not simply whether the UK subsidiary’s cost-plus percentage is arm’s length. The group must reconsider the premise on which functions, assets and risks were attributed. The personnel who control economically significant risks, develop or exploit intellectual property, negotiate customer relationships and make strategic decisions may support a different allocation of profit from the one shown in the policy documents.

Legal ownership remains relevant. It is not, on its own, an entitlement to the residual return.

CFC, permanent establishment and treaty positions

A structure may have been monitored under the UK controlled foreign company rules on the assumption that the relevant entity was foreign. If the company was UK resident, that premise must be revisited: direct UK corporation tax exposure may replace or materially alter the CFC analysis.

Positions taken on permanent establishments, withholding taxes, treaty relief, group relief and cross-border loss utilisation may also need to be tested again. The correct consequences depend on the jurisdictions, periods, taxes and treaty wording involved; there is no safe global adjustment that can simply be applied to the existing model.

Migration is itself a taxable event

Once the risk is identified, groups sometimes propose moving all future board meetings overseas and treating the matter as corrected from that date.

That can be doubly dangerous. First, future non-UK residence requires a genuine movement of central management and control, not a new calendar. Secondly, a company that ceases to be UK resident can trigger exit charges across several regimes, including chargeable gains, loan relationships, derivatives, intangible fixed assets and trading stock. Notification, valuation, payment and possible deferral provisions must be considered before the migration takes effect.

Moving residence is a transaction, not an administrative tidy-up.

Three defensible endings

Once the factual position is understood, the group generally has three strategic choices.

1. Accept UK residence and align the structure

If the commercial leadership, strategic decision-making and key risk control are intended to remain in the United Kingdom, UK residence may be the most credible outcome.

The work then becomes one of alignment: establish the effective date, regularise the corporation tax position, revisit transfer pricing and treaty claims, and ensure that governance, reporting and legal documentation describe the business that is actually being operated.

Foreign incorporation may still serve legal or commercial purposes. It should not be allowed to obscure the company’s UK tax identity.

2. Restore genuine overseas control

If non-UK residence remains commercially important, the foreign board must receive and exercise real strategic authority.

That normally requires directors with appropriate experience, timely access to information and the practical ability to reject, amend or defer material proposals. Reserved matters, delegated authorities and reporting lines must be redesigned. In some cases, senior functions or decision-makers must move because the desired residence outcome is incompatible with the existing location of the business leadership.

This is an operating-model change. Better minutes cannot compensate for unchanged conduct.

3. Restructure the business deliberately

The group may conclude that the historic entity is no longer the correct vehicle. Contracts, assets or functions may need to be transferred to an entity whose location and governance match the future business.

That route can produce a cleaner long-term result, but the restructuring must be modelled for corporation tax, chargeable gains, transfer pricing, withholding taxes, VAT, employment taxes, legal transfer requirements and any exit charges. A tidy organisation chart can be expensive if the sequence is wrong.

Six questions that expose the real operating model

A residence review becomes more useful when it tests behaviour rather than collecting documents. Six questions are particularly effective.

1. The counterfactual: Could the overseas board realistically refuse the proposal without creating a crisis because the business had already committed to it?
2. The chronology: At what exact point was the commercial decision made, and what evidence existed at that time?
3. The authority: Which person could change the strategy, pricing, budget or risk appetite without seeking approval from someone else?
4. The information: Did the board receive sufficient material early enough to exercise informed judgment?
5. The conduct: Do emails, negotiations, system approvals and implementation steps support the governance narrative recorded in the minutes?
6. The consistency: Do the residence analysis, transfer pricing policy, CFC position, permanent establishment review, accounts and legal agreements describe the same business?

If those questions point to different countries, the problem is not solved by selecting the most convenient answer. The operating model itself is internally inconsistent.

The decision

In this case, the group initially considered strengthening the overseas board process while leaving the UK management team’s role unchanged.

That option was rejected. It would have improved the evidence without changing the fact that the decisive commercial authority remained in London.

Moving genuine control overseas was also possible, but only if the group transferred senior decision-making responsibility, accepted slower approval processes and changed the way key customer, pricing and investment decisions were made. The business did not want that result.

The group therefore chose to align the tax position with the commercial reality. It accepted that the foreign-incorporated company would be managed as a UK-resident entity, reviewed the historic periods, rebuilt the transfer pricing analysis and retained only those overseas governance functions that continued to serve a genuine legal or operational purpose.

It was not the lowest-tax answer on a spreadsheet.

It was the answer the organisation could operate, evidence and defend.

The quiet conclusion

Corporate residence disputes are often described as arguments about board meetings. They are really arguments about identity.

The certificate of incorporation tells us where a company was created. The group chart tells us how the organisation wishes to describe it. The minutes tell us what the formal process was intended to record.

None of those documents can, by itself, tell us where the controlling mind of the business actually operated.

A company can retain its name, its registered office and its overseas board calendar. It cannot safely retain a tax identity that no longer belongs to it.

The case study is a fictionalised composite designed to illustrate recurring cross-border corporate residence issues. It does not identify any client or transaction. The analysis is necessarily fact-specific and the relevant domestic law and treaty must be examined for each company and period.

Mail: angelo@vectigalistax.co.uk

Website: www.vectigalistax.co.uk