US MULTINATIONALS
It pays to plan Miles Dean asks how US multinationals must prepare when using the UK as a stepping stone to the wider world.
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s Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.� For many US headquartered multinationals, the UK is a natural stepping stone or launchpad to the wider world. Language, culture and a pro-business tax regime all make the UK a natural home. Despite these obvious advantages, however, various aspects of the UK tax regime can create significant problems for US corporates that enter the UK without undertaking proper detailed planning in advance.
1. UK corporate tax residence
A US corporation that exercises its central management and control in the UK will become UK tax resident and subject to UK corporation tax at 19% on its worldwide income and gains. Central management and control is determined by reference to UK case law and is the place where decisions about the strategic policy and direction of the corporation are taken. These decisions can generally be distinguished from decisions of a more day to day, operational nature.
AIAWORLDWIDE.COM | ISSUE 109
Miles Dean Head of International Tax, Andersen Tax
It is not uncommon for US groups to have personnel based in the UK that are involved in the strategic decision making process. UK case law on central management and control is (relatively) taxpayer friendly. With careful adherence to a management framework (in terms of the types of decisions that business managers and senior executives may take in and outside the UK), this risk can be managed. It should be noted, however, that unwinding historic arrangements where central management and control is in the UK can give rise to separate tax risks that need careful consideration (i.e. to ensure a UK exit tax charge does not inadvertently arise).
2. Permanent establishment risk
A foreign corporation that does not exercise central management and control in the UK can still be exposed to UK corporation tax where it has a UK permanent establishment. A UK permanent establishment will arise where the foreign corporation:
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