Does a ‘Nominee Director’ Exercise Central Management and Control?
Corporate tax residency rules differ by country. In Australia, a company is tax resident if it is either:
Incorporated in Australia; or
Carries on business in Australia and:
Its central management and control (CM&C) is in Australia; or
Its voting power is controlled by Australian tax-resident shareholders.
Importantly, a business may be considered to be carried on in Australia even if its trading or investment activities occur elsewhere. This raises a key challenge: how can a company demonstrate that its CM&C is exercised outside Australia when its shareholder or ultimate owner is Australian-resident?
Commonly, companies—particularly in Singapore—appoint nominee directors to satisfy local legal requirements, such as the mandate under Singapore’s Companies Act for at least one ordinarily resident director. However, under Singapore’s Corporate Service Providers Bill, a nominee director ‘means a director who is accustomed or under an obligation whether formal or informal to act in accordance with the directions, instructions or wishes of any other person.’ This definition raises compliance issues under Australian tax law.
According to the ATO’s Practical Compliance Guideline 2018/19 (PCG 2018/19), the following red flags elevate risk of scrutiny:
1. A tax avoidance scheme exists whose outcome depends, in whole or part, on the location of a company’s residence…
2. There is an artificial or contrived arrangement affecting the location of central management and control…
3. There are facts, or an absence of facts, suggesting that central management and control is not being exercised in any foreign jurisdiction.
Where CM&C is legitimately in Singapore, corporate tax is 17%. If deemed to be in Australia, tax rises to 30%, with only the 17% paid offshore credited under the double tax treaty—resulting in an additional 13% payable. The benefit of Singapore’s lower rate therefore hinges entirely on CM&C being genuinely located there.
A nominee director acting under instruction from an Australian shareholder is likely to be seen as a contrived arrangement. Moreover, nominee directors often disclaim involvement in management decisions. If the ATO were to request documentation from such a director, their response could confirm the absence of real control—an adverse fact in the residency analysis.
A company found to have its CM&C in Australia may face retrospective tax liability, penalties, and immediate tax due for multiple years, with no need for any new legislation—only ATO enforcement.
If this scenario applies to your company or your clients’, proactive steps should be taken now. If you would like to explore risk mitigation strategies, we would be happy to arrange a time to discuss.