The First-tier Tribunal's recent decision in Cogefin (Bermuda) Limited v HMRC is a useful reminder that when determining corporate residence, substance will prevail over form.
At first glance, the structure appeared to have many features commonly associated with offshore management: Cogefin was incorporated in Bermuda, had Bermuda resident professional directors and received corporate administration services in Bermuda.
However, after reviewing more than 20,000 pages of correspondence spanning over two decades, the Tribunal concluded that the company's central management and control wasn’t exercised in Bermuda, but in the UK by Mr Ciardi, a UK resident individual who was heavily involved in the company's affairs over many years. As a result, Cogefin was found to be UK resident between 1999 and 2017.
More than a residence dispute
The significance of the decision lies not only in the Tribunal's findings on residence, but in the consequences that followed. Having concluded that Cogefin was UK resident between 1999 and 2017, the Tribunal upheld HMRC's corporation tax assessments covering that entire period.
The company was also unable to establish that it had a reasonable excuse for failing to notify chargeability, allowing HMRC to rely on extended assessment time limits. Penalties were also upheld, albeit on the basis that the conduct was careless rather than deliberate.
The case is therefore a useful illustration of how governance issues can develop into long running and potentially very costly tax disputes.
Looking beyond the paperwork
What proved problematic for Cogefin was the Tribunal's view that the directors were no longer exercising genuine decision making authority. In reaching that conclusion, the Tribunal focused heavily on the contemporaneous evidence, including examples of:
- Transactions negotiated before board involvement
- Directors being asked merely to provide signatures or approvals required under bank mandates
- Routine company matters being referred to the UK-based individual for authorisation
- Board minutes that didn’t accurately reflect the underlying transactions
- Directors approving matters without first reviewing the relevant documentation
Taken together, these factors led the Tribunal to conclude that the directors were performing little more than a “sense check” of proposals developed elsewhere, rather than exercising central management and control.
Why this decision matters
The facts of Cogefin were unusual and supported by an exceptional volume of evidence. Nevertheless, the decision highlights a number of recurring risk areas:
- Influential settlors, beneficiaries or founders becoming the de facto decision makers
- Directors relying heavily on recommendations without demonstrating independent judgement
- Counterparties treating someone other than the board as the person in control
- Governance procedures that exist formally but don’t reflect reality
Perhaps most importantly, the Tribunal concluded that Mr Ciardi’s proposals to the board of directors were treated as instructions rather than requests, and therefore decision making had effectively been abdicated by them to Mr Ciardi.
Key takeaway
Cogefin is a fact specific decision, but the wider lesson is clear: corporate residence continues to depend on where real decision making takes place, not simply where a company is incorporated, where board meetings are held or what the minutes record.
For offshore structures, the case is a timely reminder that governance isn’t just a procedural exercise. When the reality of decision making diverges from the documented position, the consequences can extend far beyond a residence analysis and result in substantial tax, penalties and years of HMRC scrutiny.
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