Untelrab Ltd v McGregor: 1996

(Inland revenue Comissioners) A Jersey company was established as a wholly owned subsidiary of a UK-based group. The directors met in Bermuda, not in Jersey. Its function was to hold surplus group funds, to invest them for the time being, and to lend them to operating companies in the group when they were needed. All requests for loans were in fact accepted, but if a request had been improper or unreasonable it would have been refused by the local board of directors. One finding was: ‘The directors of Untelrab would have carried out instructions from Unigate so long as they considered that such instructions were not to the detriment of Untelrab and if the instructions were for the benefit of the group they saw no problem with that.’ In 1987, at the request of the parent company, the directors who had previously met in Bermuda resigned and appointed United Kingdom directors in their place. Thereafter board meetings were held in the United Kingdom. However, the Revenue assessed the company to corporation tax on the basis that it had in fact been resident in the United Kingdom throughout. The company appealed.
Held: The appeal was allowed by the Special Commissioners. That a board might do what it was told, did not mean that the control and management elsewhare. The board exercised its discretion and would have refused to carry out an improper or unwise transaction. The subsidiary’s board met in Bermuda and transacted the subsidiary’s business there and would have refused to carry out any proposal which was improper or unreasonable. Although the subsidiary was ready to do as asked, it gave effect to the parent’s wishes and the parent did not usurp the control of the subsidiary. The subsidiary’s central management and control was in Bermuda and it was therefore resident there.’

[1996] STC(SCD) 1
Cited by:
CitedUnit Construction Co Ltd v Bullock HL 30-Nov-1959
The UK parent company owned subsidiaries incorporated in East Africa and carried on trading activities there. The managing director of the parent company concluded that ‘the situation of the African subsidiaries was becoming so serious that it was . .

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Updated: 01 November 2021; Ref: scu.224814