If your company conducts its affairs in multiple jurisdictions, how it is taxed in Australia will depend on whether that company is considered an Australian resident for tax purposes. A company incorporated overseas may be an Australian resident for tax purposes where it is carrying on a business in Australia and either its ‘central management and control’ (CM&C) is in Australia, or its voting power is controlled by Australian shareholders. This article will discuss what it means to be an Australian tax resident, what CM&C is and who has it, and when a company’s voting power is controlled by Australian shareholders.
Broadly, a company will be a ‘resident of Australia’ when:
Where you incorporate your company in Australia (such as under the Corporations Act 2001 (Cth)), it will be an Australian resident. Where that company has foreign directors or shareholders, it may also be a tax resident in another country. If this is the case, residency will vary depending on what other country the company is resident in.
A company will be an Australian resident where it is carrying on a business in Australia, and its CM&C is in Australia. However, if a company has its CM&C in Australia, it will be considered to be carrying on a business in Australia, even if there are no other business operations in Australia.
This means that if the relevant company operates anywhere in the world and has its CM&C in Australia, it will likely be deemed to be carrying on a business in Australia. Likewise, the ATO may deem the foreign company as an Australian tax resident regardless of its place of incorporation.
CM&C refers to the control and direction of a company’s operations, not necessarily where the day-to-day conduct and operations occur. It refers to where a company makes high-level decisions, such as setting general policies and determining the direction of operations.
You would determine CM&C on what actually happens rather than what should happen based on policies or procedures. It will depend on the company’s overall business activities. Each factual circumstance will be different, and no one factor alone will be determinative.
Examples of central management and control:
Examples which may not equate to central management and control:
For decision-making to be CM&C, the decision-makers must actively consider what is in the company’s best interests. They cannot just implement or approve decisions others make without properly considering their own.
You cannot establish CM&C just by looking at who has the legal authority to direct a company (which would ordinarily be a company’s directors). It depends on who is making the decisions in reality.
While directors generally run a company according to its constitution and relevant corporate laws, this is not the end of the inquiry. There needs to be more than mere legal power or authority to manage a company to establish the exercise of CM&C.
Where a company’s CM&C is located is a question of fact. It is not necessarily where:
Generally, where board meetings occur is the starting point for determining the location of the company’s CM&C. However, there might be no board meetings, no record of minutes, or the minutes are unclear. In that case, you would consider other evidence to determine where the company exercises CM&C, including:
If the board is considered to be rubberstamping or merely implementing decisions made by others, the location of the board meetings or directors will be less relevant.
Where a company makes decisions in multiple places, the important considerations are:
It is not necessary to consider all of the circumstances. However, the following will be particularly relevant in determining where CM&C is when there are multiple relevant locations:
A company will also be a resident of Australia where the foreign company carries on a business in Australia, and its “voting power is controlled by shareholders who are residents of Australia”.
ATO ID 2011/74 considered what it meant to have “voting power controlled” (albeit in a slightly different context). The ATO’s view is that to hold a controlling interest in a company, a shareholder must hold the “majority of voting power” in that company. This suggests that Australian resident shareholders must own a majority of shares in a foreign company to satisfy this condition.