Doubt about the central management and control residency test for companies?

This article critically examines the Australian Taxation Office (ATO) interpretation of the second statutory test for company residence found in the definition of ‘resident’ in sub-section 6(1) of the Income Tax Assessment Act 1936. The statutory test consists of three components: first, if the company is incorporated in Australia then it is a resident; second, if the company is not incorporated in Australia but the company is carrying on a business in Australia and has its central management and control in Australia then it is a resident; and third, it is not incorporated in Australia but it is carrying on business in Australia and has its voting power controlled by shareholders who are resident in Australia then it is a resident of Australia for taxation purposes. The central management and control test contained in the public Taxation Ruling TR 2004/15 has been the subject of considerable conjecture and confusion for many years. The ruling states that the test of residency for a company not incorporated in Australia consists of two requirements: the company must be carrying on business in Australia and it must have its central management and control located in Australia. A company not incorporated in Australia and thus not satisfying the first test of residency must have its central management and control in Australia or have the majority of shareholders resident in Australia coupled with the carrying on of a business in Australia before it is held to be a resident. The contrary view is that the central management and control test on its own may be sufficient to deem a non-Australian incorporated company to be a resident for taxation purposes. It is contended that there is no need to demonstrate that the company is also carrying on a business in Australia. This article contends that the approach of the Commissioner of Taxation contained in TR 2004/14, is open to serious doubt.