UK Changes Treatment of Dual-Resident Companies Which Could Affect U.S. Tax Planning

As of late November 2015, the HM Revenue and Custom (HMRC), otherwise known as the tax authorities in the UK, agreed on a new interpretation of the tie-breaker provision in their income tax treaty about how to interpret the company residence with the country of Jersey. The tie-breaker section of their treaty will now be used to determine whether or not a company will receive the benefits of being considered a resident for tax purposes.

This is a drastic change from the HRMC’s previous views on taxes and it could have a great impact on U.S. taxpayers. Prior to this change, dual-resident companies were not treated as residents of either jurisdiction in which they were located and/or managed; therefore, they were never eligible for any treaty benefits. These companies are now considered to be residents of whichever jurisdiction they are managed in and will be able to reap the benefits of the treaty, with the only exception being if the company is managed in both the UK and another jurisdiction. In these cases, they will not be eligible for any treaty benefits.

What countries are affected by this change? Here’s a list:

  • Antigua
  • Belize
  • Brunei
  • Burma
  • Greece
  • Grenada
  • Guernsey
  • Isle of Man
  • Jersey
  • Kiribati
  • Malawi
  • Monserrat
  • St. Kitts & Nevis
  • Sierra Leone
  • Solomon Islands
  • Tuvalu

Jersey, Isle of Man, and Guernsey all do not have any corporate income tax, creating tremendous opportunities for U.S. businesses that wish to keep their operations outside of the states, but also eliminate UK corporate taxes, and still receive deferred income under U.S. federal income tax laws. To learn more about this change, contact Castro & Co. today.

For comprehensive international tax law representation, call Castro & Co. today.

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