1. Introduction

‘Special purpose vehicles’ (SPVs) are frequently used in cross-border transaction structures. Since the SPVs are incorporated for specific purposes and since they have finite life span, Boards of Directors of the SPVs follow the mandates from the parent companies. Though the majority members of the SPVs’ Boards of Directors are usually ‘locals’, can the parent companies’ jurisdictions regard the foreign SPVs as tax residents of the parent companies’ jurisdictions? That was the central question in a relatively recent UK court decision.

In the above-mentioned case, a UK court was required to evaluate as to whether the ‘central management and control’ (a concept similar to ‘effective management’) of certain foreign SPVs was situated in the United Kingdom because a UK company owned those SPVs.

The UK tax authorities rejected the UK company’s claim that the SPVs’ (local) Boards of Directors possessed and exercised the central management and control of those companies. As per the UK tax authorities, the UK company exercised the central management and control of those SPVs and, hence, the SPVs were tax resident of the United Kingdom.

The above-mentioned decision is a landmark case on central control and management/ place of effective management (POEM) of SPVs, and it is of significant persuasive value even outside the United Kingdom.

This article analyses in detail the relevant facts of that decision as well as the approach and reasoning of the UK court.