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Doubt about the central management and control residency test for companies?

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Jones, D, Passant, J and McLaren, J 2018 , 'Doubt about the central management and control residency test for companies?' , Journal of Australian Taxation, vol. 18, no. 1 , pp. 121-142 .

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Abstract

This article critically examines the Australian Taxation Office (ATO) interpretation of the secondstatutory test for company residence found in the definition of ‘resident’ in sub-section 6(1)of the Income Tax Assessment Act 1936. The statutory test consists of three components:first, if the company is incorporated in Australia then it is a resident; second, if the companyis not incorporated in Australia but the company is carrying on a business in Australia and hasits central management and control in Australia then it is a resident; and third, it is notincorporated in Australia but it is carrying on business in Australia and has its voting powercontrolled by shareholders who are resident in Australia then it is a resident of Australia fortaxation purposes. The central management and control test contained in the public TaxationRuling TR 2004/15 has been the subject of considerable conjecture and confusion for manyyears. The ruling states that the test of residency for a company not incorporated in Australiaconsists of two requirements: the company must be carrying on business in Australia and itmust have its central management and control located in Australia. A company notincorporated in Australia and thus not satisfying the first test of residency must have itscentral management and control in Australia or have the majority of shareholders resident inAustralia coupled with the carrying on of a business in Australia before it is held to be aresident. The contrary view is that the central management and control test on its own maybe sufficient to deem a non-Australian incorporated company to be a resident for taxationpurposes. It is contended that there is no need to demonstrate that the company is alsocarrying on a business in Australia. This article contends that the approach of theCommissioner of Taxation contained in TR 2004/14, is open to serious doubt.

Item Type: Article
Authors/Creators:Jones, D and Passant, J and McLaren, J
Keywords: company residency for tax purposes
Journal or Publication Title: Journal of Australian Taxation
Publisher: Journal of Australian Taxation Pty Ltd
ISSN: 1440-0405
Copyright Information:

Copyright 2016 Journal of Australian Taxation

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