Tie breakers—when tax treaties impact on the UK tax residence of companies
Tie breakers—when tax treaties impact on the UK tax residence of companies

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Tie breakers—when tax treaties impact on the UK tax residence of companies
  • What is the role of double tax treaties in determining residence?
  • The impact of the BEPS process
  • Mutual agreement tie breakers
  • Place of effective management tie breakers
  • Deemed tie breakers based on management and control
  • Treaty non-residence

Each jurisdiction applies its own domestic law test to determine when a company is treated as tax resident there. A company can be resident in more than one jurisdiction, and potentially taxed more than once, on the same profits. For instance, a company incorporated outside the UK whose board of directors takes all its decisions in the UK could be treated as tax resident in both the other jurisdiction (since it is incorporated there) and the UK (since the board takes its decisions in the UK). This is where a double tax treaty, and in particular, a residence tie breaker clause, can help.

A residence tie breaker is only relevant if:

  1. a company is tax resident in two jurisdictions under their domestic rules, and

  2. there is a double tax treaty containing a tie breaker between those two jurisdictions

If there is no relevant double tax treaty, dual residence persists. Dual residence may have adverse effects on the availability of certain tax reliefs, as is the case for dual resident investing companies that are tax resident in the UK and another jurisdiction. For further detail, see Practice Note: Dual resident investing companies (DRICs). A dual resident company can, of course, change its circumstances to ensure that it is only tax resident in one jurisdiction. Before making any such change, it is important to consider