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Place of effective management
The place of effective management is a key concept of the savings tax directive as it determines if:-- An entity /legal arrangement is a Paying Agent Upon Receipt if managed within the savings tax territory
- A bank must report interest payment to an entity / legal arrangement effectively managed in another territory within the savings tax territory, irrespective of the beneficial owner.
Definition of Place of Effective Management
| Directive Clause | Commentary | | Art(1)(b) | Place of effective management of an entity:
with or without legal personality, shall mean the address where key management decisions are taken that are necessary for the conduct of the entity’s activity as a whole. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive; | Where a board of directors formally finalizes and/or routinely approves key management, commercial and strategic decisions necessary for the conduct of the entity’s business in one State but these decisions are in substance made in another State, the place of effective management will be in the latter State. In determining the place where a decision is in substance made, one should consider the place where advice on recommendations or options relating to the decision were considered and where the decision was ultimately taken.
Indeed, the place where the board of directors meet is overruled as the place of effective management when it appears that the key management decisions are in substance made in another State.
For an offshore company managing a portfolio for a private individual, the most likely place of effective management is the permanent address of the majority shareholder. |
| Art 1(b) | Place of effective management of a trust or other legal arrangement:
shall mean the permanent address of the natural person who has the principal responsibility for the key management decisions relating to the assets of the legal arrangement, in the case of a trust the trustee. Where more than one natural person has such principal responsibility, the place of effective management shall be considered to be at the permanent address of the person who has the principal responsibility for most of the key management decisions relating to the assets producing interest payments within the meaning of this Directive, or
The address where the legal person, who has the principal responsibility to manage the assets of the legal arrangement, in the case of a trust the trustee, takes the key management decisions relating to these assets. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive | |
Definition of Place of Effective Taxation
| Directive Clause | | Art(1)(c) | Effective taxation:
Subject to effective taxation’ shall mean that an entity or a legal arrangement is liable to tax on all its income, or on the part of its income attributable to its non-resident participants, including on any interest payment. |
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