The Tax Residency of a Legal Person During the World Health Pandemic

Abstract

It is common for directors to travel from their home jurisdiction to another jurisdiction to attend board meetings. At these Board meetings, the company’s tactical and operational decisions are made, resulting in the latter jurisdiction being the Place of Effective Management. Due to the Covid-19 pandemic, there is a lack of certainty t regarding the possible changes in the Place of Effective Management of a company due to the incapacity of the board members or senior executives to travel abroad given stringent travel restrictions. Numerous countries around the world have reacted to the Covid-19 pandemic with exceptional lockdowns, extremely limiting economic activity and the personal movement of their citizens. The concern may affect the company’s residence under domestic laws and influence the company’s tax jurisdictions. It is not out of the ordinary for foreign companies to have one or more board members who reside in South Africa, particularly if the foreign companies are subsidiaries of a group headquartered in South Africa. In case SARS were to require the eye that managerial decisions taken in South Africa during the lockdown by a CEO or other Board members of a foreign company have caused the foreign company to become a South African tax resident, at that point it be at risk of being taxed here as well as in the country where it is normally tax resident.