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Is your Foreign Company an Australian Tax Resident? Central Management & Control can Bury You

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The concept of central management and control is a cornerstone in determining corporate residency for tax purposes in Australia. If a foreign company has it’s central management and control in Australia, it is an Australian tax resident – this is a significant tax risk for all foreign companies with Australian owners or controllers.

Very importantly, this risk can be managed by obtaining guidance from tax lawyers. Doing nothing is what will cause major issues.

Since the landmark High Court decision in Bywater Investments, the Australian Tax Office (ATO) has refined its approach to central management and control, significantly impacting how corporate residency is assessed and making is a higher risk.

This article delves into these developments, summarising key ATO guidelines and exemptions, specifically PCG 2018/9 and TR 2018/5, and discussing the informal ‘safe harbour’ conditions.

The Bywater Case and It’s Implications for Foreign and Offshore Companies

The Bywater Investments case marked a pivotal moment in Australian tax law. The High Court affirmed that a foreign-incorporated company could be an Australian tax resident if its central management and control is located in Australia despite the fact that no other business is carried on.

This decision emphasised the importance of substance over form, focusing on where the actual business decisions were made, rather than the location of board meetings only and the use of nominee directors. The ruling challenged multinational companies and private groups, especially those with global operations but key decision-makers in Australia, to reassess their tax residency status.

What is Central Management and Control?

TR 2018/5 is the central taxation ruling that provides the ATO’s view on the meaning of ‘central management and control’ and its relevance to the corporate residency test. It clarifies that the mere formal exercise of power in Australia, such as holding board meetings, does not necessarily constitute central management and control. Instead, it is the substance and reality of where high-level decisions are made and the company is strategically controlled that determine tax residency.

This ruling reinforces the need for companies to review their governance structures and decision-making processes or they may be at significant tax risk.

The Importance of Board Minutes and the “Safe Harbour”

PCG 2018/9 provides guidelines on how the ATO applies the central management and control test for foreign-incorporated companies. This practical compliance guideline aims to help businesses understand whether their central management and control activities might inadvertently lead to Australian tax residency.

There is effectively a safe harbour based on the location of board minutes, as board minutes are often the primary source for identifying where and by whom a company’s high-level decisions are made. Very importantly, PCG 2018/9 explains how to assess whether your board minutes are sufficient:

  1. Board Minutes as Prima Facie Evidence: If a company maintains comprehensive board minutes detailing where all high-level decisions were made and by whom, the ATO will generally accept these records as primary evidence establishing where the company’s central management and control is located.
  2. Content of Board Minutes: The minutes don’t need to detail board deliberations, reasoning behind decisions, or consideration of alternatives. However, including such details can strengthen the evidence of the CMC’s location.
  3. Conclusiveness of Accurate Board Minutes: True and accurate board minutes are usually treated as conclusive evidence of where a company’s CMC is exercised, barring any contrary evidence.

In the absence of detailed or complete board minutes:

  1. Alternative Evidence: If a company lacks board minutes or if the minutes don’t fully capture who made decisions or where they were made, the ATO will consider other evidence. This can include pre-meeting papers, emails, correspondence reflecting board deliberations, and individual roles in decision-making.
  2. Oral Evidence and Statements: The ATO may also take into account oral evidence and statements from those involved in the company’s decision-making process.

Although it’s not mandatory for board minutes to detail the deliberations, reasoning, or consideration of alternatives behind decisions, it supports the authenticity of the decisions recorded but also provides a more comprehensive picture of the decision-making process. This additional information can significantly bolster the credibility and conclusiveness of the board minutes as evidence of central management and control.

Situations Requiring Additional Evidence

In instances where board minutes are incomplete, not kept, or are shown to be false or misleading, PCG 2018/9 necessitates examining other forms of evidence to determine central management and control. This includes documents that reveal who has the formal authority to make high-level decisions, like the company’s constitution or other founding documents, and evidence showing these provisions are followed in practice. Other materials like circulated papers, emails, and correspondence that reflect the board’s deliberations and each director’s role in decision-making may also be considered. Additionally, oral evidence and statements from individuals involved in the company’s decision-making process are taken into account.

Practical Considerations

All persons with foreign companies need precise tax advice in light of the Bywater case and these rulings.

While the Bywater Investments case and subsequent ATO guidelines have provided clarity on central management and control, they also bring new challenges. Companies must now balance global operational needs with tax residency considerations, often requiring a restructuring of governance and decision-making processes. Some companies may inadvertently become Australian tax residents which can be disastrous.

There’s a growing need for multinational corporations and private businesses to have a clear understanding of where their central management and control is located and to document decision-making processes comprehensively.


The Bywater Investments case and the ATO’s subsequent guidelines have significantly influenced the landscape of corporate tax residency in Australia. Understanding and applying the principles of central management and control is now more crucial than ever for companies with global operations and Australian connections. Adhering to the safe harbour conditions and regularly reviewing corporate structures can help mitigate the risk of being deemed an Australian tax resident, ensuring compliance and strategic tax planning.

Disclaimer: This material is produced by Cadena Legal, a NSW-registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Contact us here for advice.

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