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Practical Compliance Guide (PCG) 2018/9 provides a transition period for foreign incorporated companies to change their governance arrangements so that they do not become Australian residents solely because their central management and control (CM&C) are located in Australia.
The transitional period ends on 30 June 2019.
To be eligible for the transitional compliance approach a foreign incorporated company must meet the following conditions:
The ATO will not apply resources to review or seek to disturb a foreign incorporated company’s status as a non-resident, provided during the transitional period it:
If a foreign incorporated company becomes an Australian resident, the potential Australian income tax consequences include:
If you are involved or have interest in a foreign incorporated company, before 30 June 2019, you should:
Moving forward, records of board meetings and key decisions should be appropriately documents, including where each person was located when they participated in the meeting or made the decision
TR 2018/5 states a company’s CM&C refers to the control and directions of its operations, the key element of which is the making of high-level decisions that set the company’s general policies and determines the direction of its operations and the type of transactions it will enter.
CM&C is different from the day-to-day conduct and management of a company’s activities and operations. Though it is noted the day-to-day conduct and management of a company’s operations might be an exercise of CMAC in circumstances where they are effectively the same.
When determining who exercise a company’s CM&C, all of the relevant facts and circumstances must be considered. TR 2018/5 notes that CM&C will normally be exercised by its directors, but that there is no presumption that they will always exercise CM&C.
PCG 2018/9 provides ATO guidance on who exercises a company’s CM&C and where it is exercised. It also, provides an ongoing compliance approach for wholly owned subsidiaries of listed companies where, amongst other things:
A foreign incorporated company will be a resident of Australia for tax purposes if:
Historically, the ATO view set out in TR 2004/15, was that a foreign incorporated company would not be taken to carry on business in Australia by reason that its CM&C was in Australia. This meant that a foreign incorporated company that did not conduct operational or investment activities in Australia would not be treated as an Australian resident even if its CM&C was located in Australia.
This long-standing view changed after the “Bywater case” was handed down on 16 November 2016. In light of this case, the ATO has ruled in TR 2018/5 that a company carries on business both where its trading and investment activities take place and where the CM&C of those activities occurs. Consequently, subject to any Double Tax Agreement, a foreign incorporated company will be an Australia resident if it carries on a business anywhere in the world and has its CM&C located in Australia.
