Location, location, location: Why central management and control matters for tax residence

This case involved a company registered in Bermuda, where the directors also resided. It was owned by a family trust of which Mr Ciardi, a UK resident, was the settlor and beneficiary.

Following the review of 20,148 pages of correspondence, the First-tier Tribunal concluded that the directors’ role was largely formalistic, with real decision making occurring in the UK. The FTT held that Cogefin was UK resident for corporation tax purposes for the years 1999 to 2017, on the basis that central management and control (CMC) was exercised by Mr Ciardi from the UK, not by the Bermuda based directors.

HMRC’s discovery assessments were upheld, but penalties were re categorised as careless and not deliberate. The personal liability notice (PLN) issued to Mr Ciardi, who acted as a UK shadow director, was invalid as deliberate behaviour was not established.

This is one of the most significant CMC decisions in recent years.

The tribunal found that there were consistent, long term patterns showing that Mr Ciardi made the high-level decisions on investments, loans, property acquisitions, fund subscription, bank instructions and FX trades.

It was found that the Bermuda directors did not exercise independent judgement and routinely implemented decisions already made by Mr Ciardi, signed accounts without reviewing them and sought Mr Ciardi’s approval for matters legally within their remit.

Moreover, the administrators repeatedly asked Mr Ciardi to approve capital calls, invoices and payments, even where Cogefin had binding obligations. Banks, such as Morgan Stanley and Goldman Sachs, often received instructions directly from Mr Ciardi with the Bermuda-based directors providing signatures afterwards.

The tribunal concluded that Cogefin’s “real business” was conducted where Mr Ciardi was: in London.

Applying Gestmin and Jaffe, the tribunal placed minimal weight on witness recollection and relied on contemporaneous documents. Witnesses were honest but their evidence reflected assumptions about what “should” have happened, not what did.

The documentary record showed directors acting as rubber-stamps, with decisions implemented before directors saw documentation, and administrators treating Mr Ciardi as the person with authority.

HMRC had alleged deliberate behaviour by Mr Ciardi, but the tribunal disagreed. Penalties for failure to notify were partially upheld, but downgraded to careless.

The tribunal found that the failures stemmed from poor governance, lack of expertise and over-reliance on Mr Ciardi not from intentional wrongdoing.

The PLN against Mr Ciardi was also cancelled. The tribunal accepted that Mr Ciardi was a ”shadow” or “de facto” director. However, the behaviour was not deliberate and therefore the PLN was invalid. The tribunal’s refusal to uphold the PLN shows HMRC must prove deliberate behaviour, not merely poor governance.

The decision reinforces the substance over form approach taken in residence cases. Company residence is determined by where key decisions are actually made, not simply where board meetings are held or documents signed. Overseas directors must be able to demonstrate that they are actively considering, challenging and making decisions themselves, supported by appropriate evidence in board papers and minutes.

A key factor in HMRC's success was the extent to which matters were routinely referred back to the UK-based shadow-director for approval. Businesses should review governance processes to ensure overseas directors have genuine authority and are actively making decisions, rather than merely ratifying those already made elsewhere.

The case also highlights the importance of maintaining clear separation between directors, shareholders and advisers. Instructions to banks and other third parties should come from those responsible for managing the company, and documentation should consistently reflect where decision-making authority sits in practice.