De Beers Consolidated Mines, Ltd v. Howe

Factual and Procedural Background

Company A, incorporated and registered in South Africa, was assessed to income-tax in the United Kingdom on the basis that it was resident there. Company A appealed, contending that it was not a United Kingdom resident for tax purposes. The Commissioners for the General Purposes of the Income Tax Acts for The City stated a case under section 59 of the Taxes Management Act 1880. Judge Phillimore decided the company was resident in the United Kingdom; the Court of Appeal (Judge Collins, Judge Mathew and Judge Cozens-Hardy) affirmed that decision. Company A then appealed to the House of Lords, where the present opinion was delivered.

Legal Issues Presented

1. Whether, for the purposes of section 2 of the Income Tax Act 1853 (Schedule D), a company is “resident” in the United Kingdom when its central management and control are exercised there, notwithstanding that it is registered abroad.

Arguments of the Parties

Appellants' Arguments

• A company can reside only where it is legally registered; therefore Company A, being registered in South Africa, is not resident in the United Kingdom.
• Registration provides a simple, certain and objective test of residence.

Respondents' Arguments

• A company’s residence should be determined analogously to that of an individual—namely, by where it “keeps house and does business,” i.e., where central management and control are in fact exercised.
• Company A’s principal office and diamond-marketing operations were in the United Kingdom, and its profits were realised there; hence the company was resident and taxable under the 1853 Act.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

Judge Loreburn, delivering the leading opinion, rejected the registration-only test advanced by Attorney Cohen. Applying the analogy of an individual’s residence, the Court held that corporate residence turns on where the company “really keeps house and does business,” which in practical terms means the place where its central management and control are located. The Court observed that, without such a rule, a company could escape appropriate taxation by registering abroad while conducting its substantive activities under the protection of United Kingdom law. On the undisputed facts, Company A’s principal office, managerial decisions, and profit-realisation activities occurred in the United Kingdom. Judges Macnaghten, James, Robertson and Atkinson concurred without separate opinions.

Holding and Implications

Appeal dismissed. Company A is resident in the United Kingdom for income-tax purposes and therefore subject to taxation on its worldwide profits under section 2 of the Income Tax Act 1853.

The immediate consequence is that Company A must be assessed and pay United Kingdom income-tax on its worldwide profits. The decision confirms the “central management and control” test as the governing standard for determining corporate residence under United Kingdom tax law.