The First-tier Tax Tribunal's unhelpful decision in the Development Securities case has been reversed by an Upper Tribunal decision which was published today and (at least for now) provides comfort that a lot more is required than a subsidiary's acquiescence to the parent's will in order to attribute central management and control to the parent jurisdiction.

The case concerned a scheme to enhance capital losses through certain transactions undertaken by three companies, newly incorporated in Jersey as 100% subsidiaries of UK Plc. In order for the transactions to work as intended, the JerseyCos had to be Jersey tax resident when they acquired certain assets at a price significantly in excess of their market value.

Focusing on the uncommerciality of this acquisition undertaken in pursuance of a scheme propounded by UK Plc and the fact that the Jersey directors had essentially been hired to approve the acquisition and were replaced shortly thereafter, the FTT's conclusion was that the Jersey directors had abdicated their responsibility to UK Plc and that, therefore, the JerseyCos were UK tax resident at the crucial time.

The UT decided that this conclusion was wrong as a matter of law. Its comments in respect of specific tasks and directors' duties are particularly helpful.

The UT did not consider that "the mere fact that the directors had a specific task entrusted to them by their parent, after which they were to resign, says anything about where CMC vested" (paragraph 40).

The UT further considered that, given the directors’ duty is to take into account the interests of employees, creditors and shareholders and the JerseyCos did not have any employees and the scheme did not prejudice creditors, “it would take a factor of some significance (for instance, a material risk that the Scheme was unlawful) for the Jersey directors properly to be in a position to refuse to enter into the transactions required by the Scheme” propounded by the JerseyCos’ sole shareholder (paragraph 50(4)) .

It is currently unclear whether HMRC will apply for permission to appeal the UT's decision.