Words and Phrases - "central management and control"


Bywater Investments Ltd. v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation, [2016] HCA 45

place of directors’ meeting given little weight if they are not the true decision makers

All but one of the directors of three appellants were resident in Switzerland, with all the directors’ meeting being held in Switzerland. The directors of the fourth appellant (Hua Wang Bank Berhad), a Samoa company, were employees of a Samoan international trustee and corporate service provider. The appellants traded shares on the Australian Stock Exchange. An individual resident in Australia (Mr Gould) had been found by the primary judge (Perram J) to be the indirect beneficial owner of the appellants, although Mr Gould had gone to considerable lengths to disguise this fact.

Gordon J in the High Court stated (at para 89):

All deliberative decisions by each appellant company to buy and sell Australian shares on the Australian Securities Exchange ("the ASX") were made by Mr Vanda Gould, who was based in Sydney. The companies' officers were outside Australia, but they did no more than "rubber-stamp" the decisions made by Mr Gould in Australia.

Perram J had further found that “’the directors of the taxpayers exercised no independent judgment in the discharge of their offices but instead merely carried into effect Mr Gould’s wishes in a mechanical fashion.’” (This finding was "subject only to the slight and relvantly inconsequential difference that Bywater [one of the appellants] was incorporated in the Bahamas and did not purport to hold any directors' meeting [as that as not required under Baahamaian corporate law] (para. 27).")

The High Court affirmed the findings at both levels below that each appellant was a “resident of Australia” as defined in s 6 of the Income Tax Assessment Act 1936 (Cth), which included:

a company…which, not being incorporated in Australia, carries on business in Australia, and has…its central management and control in Australia… .

Before so concluding, the Court stated (at paras 41, 84):

Ordinarily, the board of directors of a company makes the higher-level decisions which set the policy and determine the direction of operations and transactions of the company. Ordinarily, therefore, it will be found that a company is resident where the meetings of its board are conducted. But, contrary to the appellants' submissions, it does not follow that the result should be the same where a board of directors abrogates its decision-making power in favour of an outsider and operates as a puppet or cypher, effectively doing no more than noting and implementing decisions made by the outsider as if they were in truth decisions of the board. Accordingly, the question in this case is whether, in view of Perram J's findings concerning the role which Gould played and the absence of substantive decision-making by the boards of the appellants, the fact that the boards of the appellants were located abroad was sufficient to locate the residence of the appellants abroad.

…[T]he rejection of the appellants' formalistic approach, in favour of the test of fact and degree adopted in Bullock [Bullock v Unit Construction Co Ltd [1959] Ch 315 ] and Esquire Nominees [Esquire Nominees [1973] HCA 67; (1972) 129 CLR 177], is fortified by the approaches adopted in other common law jurisdictions. In Fundy Settlement v Canada [[2012] 1 S.C.R. 520 at 526 [15]] the Supreme Court of Canada applied the same test of residence to a trust as to a company, namely "where the central management and control of the trust actually takes place". Accordingly, because the non-resident corporate trustee in that case deferred to the recommendations of Canadian resident beneficiaries in the substantive decisions made regarding the trusts, it was held that the trusts were resident in Canada. Similarly, in Hertz Corp v Friend [(2010) 559 US 77], the Supreme Court of the United States held that, in determining whether a corporation is a "citizen" for federal jurisdictional purposes, the statutory criterion of "principal place of business" is …"best read as referring to the place where [the] corporation's officers direct, control, and coordinate the corporation's activities. It is the place that Courts of Appeals have called the corporation's 'nerve center' … and not simply an office where the corporation holds its board meetings… .”