Impact on Corporate Tax Residence and taxable presence

The Coronavirus pandemic has disrupted travel globally. Restrictions on movement and the location of people can affect the tax residence position of both businesses and individuals.

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Janaissa Eaglestone, Alexandra Bray
Published: 20 May 2020 Updated: 13 Apr 2023

The Coronavirus pandemic has disrupted travel globally. Restrictions on movement and the location of people can affect the tax residence position of both businesses and individuals.

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During these unprecedented times, employees and directors may be stranded outside the jurisdiction in which they are resident, or unable to travel to conduct business activities. We understand that HMRC and the OECD are taking a pragmatic approach to corporate residence in light of the pandemic; however, we recommend that businesses review the location of their employees and the impact of travel restrictions to avoid any unanticipated tax implications.

Corporate tax residence

A company will generally be treated as UK tax resident if it is incorporated in the UK. A non-UK incorporated company will also be treated as UK tax resident if it is centrally managed and controlled in the UK, assuming the ‘tie-breaker’ clause in a double tax treaty does not treat it as taxable elsewhere. A company is usually treated as having centrally managed and control (“CMC”) in the place where the highest level of control of the company takes place. This may be where the company’s board of directors physically meet and make crucial company decisions, although other factors can also be considered relevant by HMRC.

How can the COVID-19 pandemic impact corporate tax residence?

  • Risk of losing UK tax residence

Directors who are not resident in the UK and who cannot physically get to the UK to hold board meetings may give rise to issues under the CMC test. If the directors hold board meetings of a UK tax resident company in a foreign jurisdiction, there is a risk that that CMC will move residence to the foreign jurisdiction. That jurisdiction may then assert taxing rights over the company. This could ultimately lead to a loss of UK tax residence and give rise to adverse tax implications, such as UK exit charges, for the company if it unintentionally becomes tax resident in another jurisdiction, particularly if that other jurisdiction has a higher corporate tax rate than the UK.

  • Risk of unintentionally becoming UK tax resident

For non-UK incorporated companies, there is a risk that HMRC may deem the CMC to have moved to the UK if non-UK resident directors are trapped in the UK due to travel restrictions and hold board meetings from the UK. Depending on the double tax treaty position and the regularity of these meetings, this could ultimately give rise to UK tax residence for the company. This could result in the non-UK company being subject to UK tax on its worldwide profits, with additional UK administrative and reporting requirements.

A company can be treated as dual tax resident if the location of a company’s tax residence becomes unclear because of the current travel restrictions. Where this occurs, the tie-breaker article of a tax treaty should determine tax residence. For many jurisdictions, this will require tax authority agreement on where residence resides. This can be a lengthy and complex process so it is imperative that companies review the CMC residence test now and take appropriate temporary action.

Ultimately, company tax residence will be a question of fact. The directors or personnel responsible for signing tax returns during this time should therefore ensure that they have documented their consideration of this matter and any steps taken to mitigate the risk.

Creating a taxable presence

Do restrictions on travel mean that companies are at risk of inadvertently creating foreign permanent establishments (“PE”) and associated filing obligations?

  • Risk of creating a taxable presence

Where directors and significant employees of a non-UK company are forced to remain in the UK, there is a risk that an overseas company could be subject to UK corporate tax on profits attributed to its UK base by unintentionally creating a UK PE. Generally, a UK PE will exist if the non-UK company has a fixed place of business in the UK or a dependent agent (an individual who habitually concludes contracts in the non-UK company name).

Similarly, there is also the possibility that workers who are abroad and who would normally travel to the UK for work, or to perform their duties, for the UK business, would inadvertently create a foreign PE of a UK company. This will depend on local tax laws on creating a taxable presence. The OECD has issued guidance on its view on this (see below).

In either case, as conditions continue as ‘the new normal’, the risk is likely to increase and could give rise to new filing and other tax obligations. This may often not be the case but, in any event, companies should ensure that they have documented their consideration of this matter. Any steps taken to mitigate the risk should also be documented to support their position.

HMRC and OECD approaches to corporate residence during the pandemic

The OECD guidance is largely encouraging for businesses affected by travel restrictions for their employees. It states that the exceptional circumstances arising as a result of COVID-19 should not of themselves result in changes in a company’s PE or residence position under double tax treaties. The OECD goes on to encourage local tax administrations to update their guidance to ease the administrative burdens on businesses.

HMRC, by contrast, states that it does not intend to have legislation updated, as it says it already has the flexibility needed to respond to COVID-19. In particular, HMRC has said that its guidance already confirms that it will take a holistic view to determining tax residence. A few board meetings or strategic decisions made in the UK over a short period of time should not necessarily impact HMRC’s assessment of central management and control.

Similarly, HMRC notes that operations of a non-resident individual in the UK over a short period of time should not necessarily give rise to a UK PE as it would not lead to a fixed place or business or habitual carrying on of business. Where a UK PE does arise, this would be unlikely to give rise to significant additional UK taxable profits.

In reality, the risk is likely to be higher for companies for which the position was less clear-cut prior to the crisis but all businesses would benefit nevertheless from considering and documenting their position to show that good governance has been exercised.

For further detail on guidance published, visit:


Individual tax residence and employment taxes

Businesses with employees who travel regularly for work will also need to consider the payroll or reporting implications where employees spend additional days on ‘lockdown’ in a jurisdiction where they would not normally be resident. This article explains the key considerations for employers, as well as HMRC’s updated guidance on the UK Statutory Residence Test in light of COVID-19.

What should businesses be doing now?

The risk and impact on corporate residence will depend on the facts of each circumstance and will need to be reviewed on a case-by-case basis. Next steps may include:

  • Consider whether or not there are specific provisions in a company’s articles of association that provide for exceptional circumstances, such as directors attending board meetings virtually or from particular locations;
  • Draft temporary plans in relation to board meetings, which should be communicated to all relevant staff. These may include delaying certain types of meetings, having some directors located in certain jurisdictions not present at some meetings or ensuring the correct location is used for setting up and holding permissible video meetings;
  • Review the seniority of employees and directors who are located in different jurisdictions. Determine both what authorities they have contractually and in practice, as well as the duration of their stay in those locations;
  • Consider changing internal procedures and practices during the duration of the pandemic, where commercially viable;
  • Directors or staff responsible for UK tax return submission should ensure that they have considered any potential implications of new international working practices on their position. It is best practice that the position is documented; and
  • Consider the employment tax implications of any workers spending unexpected periods of time working in the UK or foreign jurisdictions and take necessary action to comply with obligations. See this article for more information.

Companies that want to understand their position or learn more about what guidelines and practices might help to mitigate risk should speak to their advisers.

How S&W can help

  • Advice on whether corporate residencies or filing requirements in your group structure are impacted by COVID-19;
  • Review of group PE risk;
  • Assistance with implementing good governance procedures and establishing guidelines to mitigate risk;
  • Assistance with any reporting and filing obligations if there is a change in tax residence or creation of a PE for corporates; and
  • Support with liaising with HMRC to agree a position on residence or support with tax authority challenge in this area.

Government and Tax legislation, sourced from HMRC and, is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice from their financial adviser before making financial decisions.


By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.