International tax: central management and control critical

International tax: Foreign tax resident


International Tax

International tax: Foreign tax resident

When is a foreign company an Australian resident for income tax purposes?

A recent taxation decision highlights that, in order for a foreign company to be treated as a foreign resident for Australian income tax purposes the central management and control must, in fact, be exercised overseas.  A foreign company will fail the non-residents test if there is only nominal overseas central management and control.

The recent decision of Perram J in the Federal Court, Hua Wang Bank Berhad v FCT [2014] FCA 1392, found that five companies incorporated outside of Australia were in fact residents of Australia for tax purposes because their place of central management and control was located in Australia.

The company taxpayers had made substantial profits share trading in securities listed on the Australian Stock Exchange. The Commissioner sought to tax those profits.

The taxpayers argued that their central management and control was exercised through third parties in various overseas locations including the United Kingdom, Switzerland and Western Samoa. They argued their position was the same as those in Esquire Nominees v Commissioner of Taxation (1973) 129 CLR 177.

The Commissioner argued that the companies were completely controlled in Australia by a Sydney accountant. The foreign structures were entirely formal and, in fact, their Sydney accountant was pulling all of the strings from Sydney.

The Court soundly rejected the taxpayers’ argument.  The Court also made significant and detrimental findings in relation to the credit of key witnesses who gave evidence in support of the taxpayers’ contentions.


The case highlights a substance over form approach in considering the location of central management and control and demonstrates that in appropriate factual circumstances, the Court will look beyond what appears in form to be a valid transaction.




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