Bywater Investments Ltd v Federal Commissioner of Taxation

The High Court of Australia considered appeals by Bywater Investments Ltd and Chemical Trustee Ltd (the appellants) against the Federal Commissioner of Taxation. The dispute concerned whether the appellant companies were residents of Australia for income tax purposes under section 6(1) of the *Income Tax Assessment Act 1936* (Cth). The appellants argued that their central management and control was located abroad, specifically in Switzerland, where their directors ostensibly held meetings. The Commissioner contended that despite these meetings, the real business and operations of the companies were controlled and directed from Australia by an Australian resident who effectively usurped the functions of the boards of directors.

The primary legal issue before the High Court was to determine the location of the "central management and control" of the appellant companies. This involved assessing whether the formal organs of the companies, namely the boards of directors, were the superior or directing authority, or if their functions were merely a rubber-stamp for decisions made elsewhere. A secondary issue, conceded by the appellants, was that if their central management and control were found to be in Australia, they would not be entitled to protection from Australian income tax under the relevant double taxation agreements, as their "place of effective management" would also be in Australia.

The High Court applied the principles established in *Esquire Nominees Ltd v Federal Commissioner of Taxation*, which holds that the residence of a company for tax purposes is determined by the place where its central management and control are located. This is a question of fact and degree, requiring an examination of where the real business of the company is carried on and where the ultimate decisions are made. The Court found that, despite the directors' meetings being held in Switzerland, the evidence demonstrated that the decisions concerning the companies' operations were in fact made by an Australian resident. Consequently, the central management and control of the appellant companies were located in Australia.

The appeals were dismissed with costs. The respondent's summons filed on 2 June 2016 was also dismissed.