Foreign incorporated companies with central management and control in Australia

By Denise Honey - October 31, 2018

Do you have a foreign incorporated company in your group? Are the directors or strategic decision makers in relation to that company in Australia?



Foreign incorporated companies with Australian resident directors or Australian resident strategic decision makers.


On Thursday 21 June 2018, the Commissioner issued a final ruling: TR 2018/5 and a draft Practical Compliance Guideline: PCG 2018/D3 about the ‘central management and control’ test in which it indicates that where a foreign incorporated company has central management and control in Australia this will be sufficient for that company to be considered to be carrying on business in Australia (i.e. it will be Australian tax resident).


TR 2018/5 will apply from 15 March 2017.  It is proposed that the Draft PCG 2018/D3 will apply from 21 June 2018, although it is not yet finalised.


For Australian tax purposes, a company that is not incorporated in Australia may nevertheless be a tax resident of Australia if it carries on business in Australia and has either its central management and control (“CMAC”) in Australia, or its voting power controlled by Australian resident shareholders.  A company’s CMAC refers to those who make the decisions about the strategic policy and direction of the company.

TR 2018/5

The ATO’s recent ruling, TR 2018/5, takes the view that when a company has its CMAC in Australia it will also satisfy the ‘carrying on a business in Australia’ requirement.  This is a change from the position previously held by the ATO in TR 2004/15 (now withdrawn) whereby this position was only taken in relation to companies without active businesses.

Although CMAC generally rests with a board of directors, the new ruling reiterates the ATO’s view that it is relevant to look at the people actually making the decisions even if they are not the directors.  Therefore, a foreign incorporated company may be an Australian tax resident when decisions made by individuals in Australia are merely implemented or rubberstamped by directors in the foreign jurisdiction.

Draft PCG 2018/D3

The draft PCG contains practical guidance and examples to assist foreign incorporated companies and their advisors in applying the principles set out in TR 2018/5.  The draft PCG focuses on the following:

  • Where a company’s central management and control is located;
  • Identifying high-level decision making;
  • Situations where decisions are made in more than one place (i.e. board meetings are held remotely); and
  • An ongoing compliance approach.

In the draft PCG, the ATO emphasises that legal control and decision making doesn’t equate to CMAC, rather the CMAC test is about identifying where a company's control and direction is exercised in substance. In particular the ATO makes it clear that directors who are ‘rubberstamping’ decisions are not exercising CMAC.

The ATO states in the PCG that as a general rule of thumb, board minutes are the starting point for identifying who exercises CMAC. However, the ATO also makes it clear that this is a general rule only and that there are circumstances in which the place of board meetings will not be determinative. Examples include situations where a company has not kept board minutes, the company makes high-level decisions outside of board meetings, or the board minutes are false (including where they record the ‘rubberstamping’ of decisions made elsewhere).  

Prudent taxpayers will ensure that they have documentation evidencing the decision making process and that such documentation matches the substance of the arrangements. Ultimately the burden of proof is on the taxpayer.

What does this mean for your foreign incorporated company?

It is important to consider whether your foreign incorporated company might be an Australian tax resident. Given this latest guidance and the ATO’s renewed focus on corporate residency issues, you would be well advised to review all foreign incorporated companies in your group from a residency perspective.

Resident companies are taxed very differently from non-resident companies and as such any misunderstanding in respect of residency status will likely have fundamental and potentially negative Australian tax consequences. 

Let’s talk

If you have a foreign incorporated company in your group or are proposing to set up a foreign incorporated company, now is the time to considering tax residency status.  Pitcher Partners are happy to help.  Give us a call to discuss.

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