Professor Jim Stewart:

The problem is that the central management and control tests are extremely ambiguous. Revenue rules indicate that where a company is centrally managed and controlled is not necessarily where board meetings take place. The issue is complex. Section 5 of the annex to the treaty which refers to the permanent establishment rules runs to 83 pages. That is what the OECD is all about. It is stating the rules are so complicated that, for one purpose, a company can decide to be located here and, for another purpose, that it is not. Action No. 6 refers to tackling the issue of base erosion. The rules are extremely ambiguous and companies can decide to be located here when it suits them and not to be located here when it does not. Countries have taken cases to challenge this and state they are located here. Spain and other countries are going through this process. If they are located in a particular country, companies must pay corporation tax and value added tax. It is extremely ambiguous as to where a company is located and where central management and control takes place. The European Court of Justice decided, in the case of Eurofood, an Irish company, that where the company was incorporated was where it was centrally managed and controlled. That is the case according to company law.