Qn’s HMRC ask to assess company residence for an offshore company

If you’re planning on setting up an offshore company to avoid UK corporation tax on the profits of a UK trade or capital gains, one of the difficulties is ensuring that the central management and control is based overseas.

Below we look at some of the questions that HMRC may raise in an enquiry into the residence of an offshore company.

Typical questions in an enquiry into the residence of an offshore company

• Please let me have copies of the minutes of the board meetings of the company.
• Please may I have the addresses of the directors of the offshore company?
• Where did the board meetings take place if not in the country of incorporation?
• Please provide an analysis of general and administrative costs of the company in reasonable detail.
• Does the company have any clerical support? If so, from whom is it provided?
• What services did the UK resident Directors provide to the company and where did they provide them?
• Please provide copies of the contracts of employment of the directors of the offshore company together with details of hours worked and responsibilities. Why is the remuneration of the directors so low when they apparently have responsibility for a company holding assets worth X millions of pounds?
• Please provide an analysis of professional fees stating who these were paid to and for what?
• Please let me have a detailed analysis of the telephone bills of the offshore company for the year.
• Please let me have a detailed analysis of business trips undertaken by the directors of the company during the period under review.
• Please may I have copies of all purchase and sale agreements entered into by the offshore company? Who made the decision that the purchases would be made?
• Who is legally entrusted to exercise central management and control and where is this duty carried out and when?
• Who makes the strategic decisions relating to the company, e.g. in respect of acquisitions etc?
• Please may I have copies of the documentation of those decisions? Where were they taken?
• Does the company have a bank account? If so, where is it held and who has the right to draw? Are these rights to draw subject to any conditions or counter signatures?
• Where is the rest of the business of the company carried on?
• Who approves lines of bank credit for the company? Who authorises which bank and financial institutions are to be used as the companies depository and please let me have copies of documented decisions.
• Who approves capital expenditure and capital projects? Please let me have copies of the documented decisions.
• Who approves audited accounts and where?

You’ll see from these questions that they cover the types of issues we’ve raised on the website. In particular ensuring that the strategic control overseas is real and that the overseas board of directors is not just acting on behalf of the UK shareholders. Particular care needs to be taken with documentation to support this including the minutes of board meetings.