The Inland Revenue has won another victory in its constant battle with advisers who use offshore companies to avoid tax. In this case, a complex scheme was put together to avoid capital gains tax on the sale of shares in a company, which involved setting up UK and offshore trusts and the eventful sale of the company's shares by a Dutch company whose sole activity was the sale of the shares. The company was a subsidiary of a company incorporated in the British Virgin Islands, a well-known tax haven.
The case turned on the test of 'central management and control' of the Dutch company, which was ostensibly under the control of a Dutch trust company. Despite the fact that the appropriate board resolutions were passed and minutes were created outside the UK, the Special Commissioners of Tax concluded that this was not enough.
The Commissioners considered that '...mere physical acts of signing resolutions or documents do not suffice for actual management. What is needed is an effective decision as to whether or not the resolution should be to some extent be informed decisions. Merely going through the motions of passing or making resolutions and signing documents does not suffice'. They concluded that the central management and control of the company lies 'where the actual effective decision that the documents be signed and executed is taken'.
If you are considering using offshore structures as a way of minimising your tax liability, you must act with great care and take advice in order not to fall foul of anti-avoidance legislation.
