COVID-19 Impact: UK Corporate Residence & Permanent Establishment

By Sam Pearse



  • The OECD and HMRC have issued guidance on the impact of Covid-19 on corporate residence and permanent establishment.
  • Both have expressed sympathy and understanding, and intimated that the restrictions caused by Covid-19 will not have an impact on assessment.


The travel restrictions imposed as a result of trying to control the spread of Covid-19 present myriad issues for corporate groups. Two such problems are the impact on the corporate residence of a company and whether a permanent establishment in the UK could be unwittingly created.

Her Majesty’s Revenue and Customs (HMRC) and the Organisation for Economic Co-operation and Development (OECD) have published guidance setting out their views on the impact of travel restrictions.

UK Corporate Residence

Under UK domestic law, a company is UK tax resident if (i) it is incorporated in the UK, or (ii) if its central management and control (CMC) is situated in the UK unless the company is treated as resident in another jurisdiction for the purposes of an applicable Double Tax Agreement (DTA).

The test for CMC looks to where the key strategic decisions regarding the business of the company are taken. Often, although not definitive, this is determined by where the board typically meets to take such decisions. The risk is that during the pandemic directors cannot travel to or outside of the UK, depending on desired residence, and so are holding board meetings virtually from their respective homes with adverse consequences on residency.

HMRC have published HMRC Approach to Company Residence in response to COVID-19 Pandemic, which states that they are “very sympathetic” to the disruption being caused and that the holistic approach they take means they “do not consider that a company will necessarily become resident in the UK because a few board meetings are held here, or because some decisions are taken in the UK over a short period of time”. As always, the individual facts and circumstances will be critical.

HMRC added that even if the CMC is deemed to be in the UK, if the company is also considered to be resident of another territory with which the UK has a DTA, the corporate residence tie-breaker provisions of the DTA may result in the company being treated as non-UK resident. Most of the UK’s DTAs include a place of effective management (POEM) or a competent authority-based tiebreaker to resolve the situation. The OECD has emphasised that the POEM is the usual or ordinary place of management rather than temporary locations elsewhere resulting from measures to observe travel restrictions.

Permanent Establishment

HMRC also issued HMRC Approach to UK Permanent Establishments in response to COVID-19 Pandemic in which they again express their sympathy. That guidance states they “do not consider that a non-resident company will automatically have a taxable presence by way of permanent establishment after a short period of time.” As always, HMRC will look at the wider fact pattern, considering the issues posed by Covid-19, to determine whether there is the “habitual conclusion” of contracts in the UK. Lastly, HMRC states that the existence of a UK permanent establishment is not in itself conclusive that a significant element of the profits of the non-resident company would be taxable in the UK.

The OECD published OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis, providing their own view that the “exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 crisis, such as working from home, should not create new PEs for the employer. Similarly, the temporary conclusion of contracts in the home of employees or agents because of the COVID-19 crisis should not create PEs for the businesses.”

Consequently, UK and non-UK companies should have comfort that careful tax planning arrangements should be unaffected during the lockdown period.

For More Information

If you have any queries about this article, or any questions in general about UK Residency or Permanent Establishment, please do not hesitate to contact Sam Pearse or another member of the Duane Morris London office.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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