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29 NewsQuarterly 1 (2009-2010)

handle is hein.journals/newsqtrly29 and id is 1 raw text is: OPINION POINT Management Based Definition for Domestic Corporations By Jonathan Schwarz* T his article is to consider proposals to adopt a management based definition for U.S. domestic corporations from a United Kingdom perspective and, in particu- lar, to respond to the article by Sarah Giddings (Should a Mailbox Be Enough? A Proposal to Redefine Domestic Corporation Status, NEWSQUARTERLY, Winter 2009, at 7). The expressions domestic corporation and foreign corporation as the basis for determining whether an entity is liable to tax on worldwide or only U.S. sources, stand in contrast to the traditional U.K. approach. Historically, worldwide taxation in the U.K. has been by reference to residence. This term has largely remained undefined by statute and accordingly, U.K. taxing jurisdiction has been based on the interpretation of the word by the courts. The challenge in this respect was identified already in the 19th century in Calcutta Jute Mills Co Ltd v Nicholson (1876) 1 TC 83 when Baron Huddleston observed at 103: Now the definition of the word residence is founded upon the habits and relations of the natural man and is therefore inapplicable to the artificial and legal person whom we call a corporation. But for the purpose of giving effect to the words of the Legislature an artificial residence must be assigned to this artificial person, and one formed on the analogy of natural persons. The definitive formulation of this analogy was by Lord Loreburn in De Beers Consolidated Mines v Howe (1906) 5 TC 198, at 213, at the beginning of the 20th century as follows: A company resides, for the purposes of Income Tax, where its real business is carried on ... I regard that as the true rule; and the real business is carried on where the central management and control actually abides. The central management and control (CMC) test has since been adopted not only in the United Kingdom but throughout the Commonwealth as the criterion for corporate residence. The place where central management and control is to be found is where the directors of the company meet in order to transact their business. This test has not been without its difficulties. Identification of such a place requires meaning to be given to the notions of management and control and a determination as to who exercises them. This was not straightforward even at the time of the De Beers case. That case concerned a South African incorporated company, listed on the London Stock Exchange, whose head office was in South Africa, where the shareholders meetings were held. Profits were made out of diamonds mined in South Africa, and * Barrister, Temple Tax Chambers, London, UK. Opinion Points 1 Management Based Definition for Domestic Corporations Saving Private Ryan's Tax Refund 17 What's Next in the Section 6501(e) Overstated Basis Controversy? 19 From the Chair 3 Stuart M. Lewis Interview 5 Irwin Treiger Readers Respond 8 To the Editor Focus on Pro Bono & Public Service The Tax Literacy Project 9 Vijay Raghavan - 2009 Public Service Fellow 11 News Briefs 12 Tax Bites 13 A Tax Lawyer's Interpretation of Shakespeare CLE Calendar 14 Boxscore 15 AiSection of the American Bar Association continued on page 16 Section of Taxation NEWSQUARTERLY

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