INTM120040 - Company residence: the incorporation rule

CTA09/S14 and CTA09/SCH2

The incorporation rule at CTA09/S14 states that, with certain exceptions, a UK incorporated company is resident in the UK for tax purposes. This rule was originally introduced as FA88/S66 and FA88/SCH7.

Carried or carrying on business

The term ‘carrying on business’ is not defined in Schedule 2 but paragraphs 3 to 5 of SP1/90 (reproduced at INTM120200) give guidance on its meaning. See also INTM120050 regarding shelf companies and nowhere companies.

Submit doubtful cases to CSTD Business, Assets & International Base Protection Policy Team.

Taxable in a territory outside the UK

The term ‘ taxable in a territory outside the UK’ means (according to the definition of ‘taxable’ in Schedule 2, paragraph 15(1)) liable to tax on income in that territory by reason of domicile, residence or place of management. Paragraphs 6 and 7 of SP1/90 (which is reproduced at INTM120200) give guidance on the meaning of these terms.

There is a similar test in the rules for determining residence for the purpose of the controlled foreign companies’ provisions and the guidance at INTM254400 may be relevant. This guidance contains an explanation of the test, in the discussion of territory of residence and a description of countries which do not or may not impose tax by reason of domicile, residence or place of management (see discussion of companies with no territory of residence).

Some companies may clearly fulfil the condition, for example, a company which can show that

  • its place of management, for example, its Head Office, is in a country which, at least in principle, taxes companies incorporated in the country on their worldwide income

and

  • the company is taxed there on the same basis as a company incorporated there.

Submit doubtful cases to CSTD Business, Assets & International Base Protection Policy team.

UK incorporated company claiming to be UK non-resident other than by the operation of a treaty

Any case where a UK incorporated company claims to be UK non-resident other than by the operation of a treaty should be submitted to CSTD Business, Assets & International Base Protection Policy team.