The House of Lords this week refused HM Revenue & Customs leave to
appeal, in a case that advisers believe clarifies the use of tax structures
commonly put in place by multi-nationals and by private equity firms.
In the case, Ron and Gail Wood, the husband and wife owners of a greetings
card company, had sold the business through a Dutch vehicle managed by ABN Amro.
The case hinged on whether the vehicle was UK resident for tax purposes.
HMRC argued that, although ABN Amro was effectively in charge of the company,
called Eulalia, the Woods were telling ABN Amro what to do in relation to the
key management decisions.
The Court of Appeal found earlier this year that Eulalia was Dutch resident,
saving the Woods tax on around £31m of capital gains.
Anneli Collins, international corporate tax partner at KPMG, said the case
would be a blow to the government’s campaign on residency issues.
Two groups of people would be pleased with the result, she said: ‘UK
multinational groups with overseas subsidiaries often spend a lot of compliance
time managing this issue particularly for their overseas holding companies,
which do not, by their nature, have much substance in terms of employees and
activities, although they may be very important for commercial reasons. Some
groups have done annual internal audits of their holding structures to make sure
that proper board meetings have been held overseas.’
Private equity houses also often have difficulty managing offshore residency
issues to avoid prohibitive tax charges, she said.