You are on page 1of 10

LAW MANTRATHINK BEYOND OTHERS

(National Monthly Journal, I.S.S.N 2321 6417)





Legal Regime Governing Tax Residence in Sri Lanka

Introduction
The importance of tax varies and it goes beyond providing income to support financially the
public sector, investments and the basic needs of citizens. The development of a state has been
closely connected to the development of tax system. However, the tax system has not only
contributed to establishing states, but also to promoting the states legitimacy and
strengthening democracy, as well as to creating economic well-being for the general
population.
1
The well known concept of fiscal social contract explains the development of
representative states and western countries democracy.
2
The Pretoria-communiqu
concludes that more effective tax systems are central for a sustainable development because
they can; mobilize the domestic tax base as a key mechanism for developing countries to
escape aid or single resource dependency; reinforce government legitimacy through promoting
accountability of the government to tax-paying citizens, effective state administration and good
public financial management; and achieve a fairer sharing of the costs and benefits of
globalization.
3
This discussion concentrates with special focus to the concept of tax residence

1
Ministry of Foreign Affairs, The importance of Taxes for development, by Odd-Helge Fjeldstad, Chr. Michelsen
Institute, June 2009, accessed on 14.01.2013; http://www.regjeringen.no/en/dep/ud/documents/nou-
er/2009/nou-2009-19-2/13.html?id=572279
2
Ministry of Foreign Affairs, The importance of Taxes for development, by Odd-Helge Fjeldstad, Chr. Michelsen
Institute, June 2009, accessed on 14.01.2013; http://www.regjeringen.no/en/dep/ud/documents/nou-
er/2009/nou-2009-19-2/13.html?id=572279; The experiences of Western Europe and North America show that
taxation has contributed to making the authorities more representative and accountable by furthering a dialog
between the state and civil society on taxation. Mobilizing interest groups (business organizations, trade unions,
and consumer organizations) to support, oppose, and propose tax reforms, has been central in this connection.
3
Ministry of Foreign Affairs, The importance of Taxes for development, by Odd-Helge Fjeldstad, Chr. Michelsen
Institute, June 2009, accessed on 14.01.2013; http://www.regjeringen.no/en/dep/ud/documents/nou-
er/2009/nou-2009-19-2/13.html?id=572279


in Sri Lanka and whether it is unclear and complicated. A person who is a resident in Sri Lanka
is assessable to tax on his two main contents which is profits and income where ever arising in
or derived from Sri Lanka.
4
The Act
5
provides in Section 79 a conclusive seven (7) different
categories which could help to constitute a residence. This discussion will move forward to
discuss on those seven different requirements in depth.
Tax Residence for Individuals:
The test of residence for individual plays a very important place in the statute for residence
test. The section regarding to this is 79(2)
6
and it is stated simply with a description of presence
of 183 days or more. The simplicity is a feature of imposing tax, but the simplicity itself has
made the individual residence concept narrow down too much and made it more unclear. The
section 79(3)
7
which refers to an individual residence have been stated in the Budget Speech
2013, under Taxation
8
that this section to be removed
9
and that only the 183 days rule will
apply in deciding an individuals residence status. Thereby with the change of Section 79(3)
the Section 79(4)
10
is also influenced and will be take into count as, which has no effect. To

4
Inland Revenue Act No. 10 of 2006, Section 2(2), For the purposes of this Act, profits and income arising in or
derived from Sri Lanka includes all profits and income derived from services rendered in Sri Lanka or from
property in Sri Lanka, or from business transacted in Sri Lanka, whether directly or through an agent.
5
Inland Revenue Act No. 10 of 2006
6
Inland Revenue Act No. 10 of 2006, Section 79(2), An individual who is physically present in Sri Lanka for one
hundred and eighty three days or more during any year of assessment, shall be deemed to be resident in Sri
Lanka throughout that year of assessment.
7
Inland Revenue Act No. 10 of 2006, Section 79(3), An individual who has been deemed resident for two or
more consecutive years of assessment shall be deemed to be resident until such time as he is continuously
absent from Sri Lanka for an unbroken period of three hundred and sixty five days. When such person is so
absent, he shall notwithstanding the provisions of subsection (2), be deemed to be nonresident from the
commencement of the year of assessment in which such absence commences.
8
Ministry of Finance and Planning, Budget Speech 2013,Documents connected to the Budget, pp viii, accessed
on 14.01.2013, http://www.treasury.gov.lk/index.php?option=com_content&view=article&id=78&Itemid=141
9
Ministry of Finance and Planning, Budget Speech 2013,Documents connected to the Budget, pp viii, accessed
on 14.01.2013, http://www.treasury.gov.lk/index.php?option=com_content&view=article&id=78&Itemid=141;
The present rule in deciding residency of an individual based on his absence from Sri Lanka for an unbroken
period of 365 days referred to in section 79(3) of the Inland Revenue Act, will be removed. Accordingly, only the
183 days rule will apply in deciding residency. (Section 79 of the Inland Revenue Act will be amended)
10
Inland Revenue Act No. 10 of 2006, Section 79(4), Where but for his presence in Sri Lanka for any period or
periods not exceeding in the aggregate of thirty days, a person would have been deemed under subsection (3) to
have been nonresident, such period or periods not exceeding in the aggregate of thirty days shall be treated as if
it or they has been spent by him outside Sri Lanka.


prove substantially why the Sri Lankan single statutory definition is complicated and unclear, I
will extend my discussion to elaborate on few jurisdictions which has put some effort to make
the tax residence definition clearer and less complicated.
In United Kingdom they have made changes to Statutory Residence Test (SRT) based on Draft
Finance Bill 2013. The intention behind
11
is that a SRT should always consist a simple process
and certainty for tax payers with their residence status.
12
Their SRT is in 3 parts named as Part
A Conclusive non - residence
13
, Part B- Conclusive residence
14
and Part C- Other connection

11
Minor Improvements announced to proposed statutory test of tax residence, accessed on 14.01.2013,
http://www.out-law.com/en/articles/2012/june/minor-improvements-announced-to-proposed-statutory-test-
of-tax-residence-/ ; At present the UK's law on tax residence depends on past court rulings and guidance from
HMRC. Many of the cases were decided some time ago and ''do not reflect modern work or travel patterns. As a
result, the rules for determining whether an individual is tax resident in the UK can sometimes be vague or
appear outmoded'' according to the Exchequer Secretary to the Treasury, David Gauke. The aim of the changes
is "to provide greater simplicity and clarity."
12
A statutory definition of tax residence in the UK, accessed on 14.01.2013,
http://www.haysmacintyre.com/publications/a-statutory-definition-of-tax-residence-in-the-UK.aspx ; At present
the definition of tax residency largely rests on decided case law which the consultation document concedes has
not provided clear or specific principles that are applicable to all taxpayers. The result is that the residence rules
are vague, complicated and perceived to be subjective. In certain circumstances it is not possible for a person to
be sure whether they are tax resident in the UK or to know what activities or circumstances would make them
tax resident.
13
Statutory definition of tax residence and reform of ordinary residence Summer 2012 update, Crowe Clark
White hill, accessed on 14.01.2013,
http://www.crowehorwath.net/uploadedFiles/UK/industries/Private_Clients/Statutory%20Definition%20of%20T
ax%20Residence%20briefing.pdf ;
Revised Part A: conclusive non-residence. If any of the following conditions are met for a particular year, the
individual is conclusively not resident for that year; * not resident in the UK for the three previous tax years and
are present in the UK for fewer than 46 days in the current tax year, * resident in the UK for one or more of the
three previous tax years and are present in the UK for fewer than 16 days in the current tax year, * left the UK to
work abroad full-time (employment or self-employment), provided they are present in the UK for fewer than 91
days in the tax year and no more than 20 (possibly increasing to 25) days are spent working in the UK during the
tax year. A day in which at least three hours of work (possibly increasing to five hours) is undertaken will count
as a full work day in the UK, irrespective of the nature of the work. For this purpose, work related training, work
related travel and work undertaken whilst commuting will all count as work. If Part A does not apply, it is
necessary to consider Part B.
14
Statutory definition of tax residence and reform of ordinary residence Summer 2012 update, Crowe Clark
White hill, accessed on 14.01.2013,
http://www.crowehorwath.net/uploadedFiles/UK/industries/Private_Clients/Statutory%20Definition%20of%20T
ax%20Residence%20briefing.pdf ;
Revised Part B: conclusive residence. An individual will be conclusively resident in the UK for a tax year if any of
the following three conditions apply; *is present in the UK for 183 days or more in that tax year, * has only one
home and that home is in the UK (or have two or more homes and all of these are in the UK), * carries out full-


factors and day counting.
15
Referring to the reference that is provided, it shows how in detail
the provision is and they have been able to state the requirements of each of their aspects
providing the tax payer less complicity. Making a distinct clarification on those in my opinion
stands a very high level of standard in their new SRT provision. They have looked in to depth
of this SRT that there have been criticisms too regarding this newly introduced SRT.
16
It has

time work in the UK (employment or self-employment) for a continuous period of nine months (possibly
increased to 12 months). The three tests originally proposed remain unchanged, although there is now
additional detail. In particular, a property does not need to be owned by an individual for it to be their home.
Rented property now qualifies, but this will not include holiday or weekend homes. In order to be considered a
home, the property must also be continuously available for at least 91 days. If this period spans two tax years
this will render the property a home in both years. If neither Part A or Part B applies, Part C must be
considered.
15
Statutory definition of tax residence and reform of ordinary residence Summer 2012 update, Crowe Clark
White hill, accessed on 14.01.2013,
http://www.crowehorwath.net/uploadedFiles/UK/industries/Private_Clients/Statutory%20Definition%20of%20T
ax%20Residence%20briefing.pdf ;
Revised Part C: other connection factors and day counting; The five connection factors remain unchanged,
although the summary of responses includes further clarification on these; * Family resident in the UK: this
condition is met if the individuals spouse, civil partner, common law partner or minor children are resident in
the UK. Children in education in the UK will not be included provided they spend fewer than 21 days in the UK
outside term-time. Nor will minor children resident in the UK if the individual spends fewer than 61 days in the
UK with them during the tax year. * Accessible accommodation in the UK: this is satisfied if UK accommodation
is available for a continuous period of at least 91 days and is used for one or more nights. Accommodation held
by relatives other than a spouse/partner or minor children will only be considered accessible if the individual
spends more than 15 nights in the tax year there. * Substantive work in the UK: this applies if the individual
works in employment or self-employment in the UK for 40 days or more in the tax year. At least three hours of
work a day constitutes a working day (although this may increase to five hours a day following further
consultation). * Previous UK presence: the individual spent more than 90 days in the UK in either of the two
previous years. * More time in the UK in the tax year than in any other country: this factor applies to leavers
only. These connection factors are combined with days spent in the UK to determine residence is attached in the
Annex 1
16
Grant Thornton, Statutory definition of tax residence, Proposed frame work for a statutory residence test, Do
you think that the proposed definitions are appropriate?, accessed on 14.01.2013, http://www.grant-
thornton.co.uk/pdf/autumn_statement_2011/Statutory%20definition%20of%20residence%20consultation%20r
esponse.pdf
Full-time work abroad
Defining 'full-time work' with reference to the number of hours undertaken is inherently problematic. Many
individuals adopt very different working patterns from the normal '9 to 5' working week. A more objective test
here would be appropriate.Paragraph 4.2 would appear to imply that an individual who takes up an employment
contract requiring him to work 20 hours per week and also carries on a self-employment business requiring a
further 20 hours per week, would not be deemed to have taken 'full-time work abroad' for these purposes. It is
hoped that this is not the case. We would welcome clarification on this matter.


been stated that those definitions could adversely reflect on any individual who bares UK
property or has any UK resident family members. It has been also stated that the proposed
new rules may also affect individuals accepting work abroad, either coming to the UK or going

Working day
Fundamental to any definition of a working day, will be a better understanding of what is deemed to be 'work'
for these purposes. The consultation document proffers no explanations as to what will constitute work and
what will not. This lack of guidance further undermines the requirement, in paragraph 4.10, to provide evidence
in support of the fact that a working day has not been completed. We should welcome some examples of the
types of evidence you would expect to receive for these purposes.
Day of presence in the UK
It is logical that a consistent approach is adopted here. However, this is not to say that the current definition is
without flaw itself. We have previously encountered problems regarding what activities are and what are not 'to
a substantial extent unrelated to an individual's passage through the UK'.
Only home
The application of the 'home' factor, used in both Part B of the test and also when considering the new 'split
year treatment' provisions, appears to be inherently flawed and would, as defined in the consultation document,
give rise to some unintended results. The proposals would appear to deem that an individual will be UK resident
if he or she happens to spend as little as six and a half weeks in the UK in a tax year where the only 'home'
retained by that individual is in the UK.
Full time work in the UK
Again, not all individuals work to a standard, 35 hour, week. The definition would therefore appear somewhat
inadequate.
Family
It would seem unfair that an individual who only spends time with his or her children outside of the UK, for
example where that individual is separated from the other parent, would be deemed as having a connecting
factor for the purposes of the residency test. This clause could be construed as having a detrimental influence on
a parents ability to spend time with their children.
Accommodation
The definition of accessible accommodation requires some further consideration before it can be considered
conclusive. In particular, we should welcome your clarification as to what would constitute a 'short-term' stay in
a
hotel or with relatives. Furthermore, what relatives, specifically, may an individual lodge with in accordance with
paragraph 4.22 of the consultation document? It would seem surprisingly illogical that an individual may be
permitted to lodge with a distant, and unfamiliar blood relative under these proposals, but not a close and
longstanding friend, who may indeed be thought of as a brother or sister.


overseas.
17
At the same time it is very important to note that to work out such a
comprehensive standard scheme that the technology should be much advanced.
18
Developing
countries such as Sri Lanka should concentrate on technology improvements too while
reforming the necessary statutory definitions to make it more effective.
19
As an example New
Zealand has created an online facility where you could talk to your tax agent and solve any
issue that could arise.
20
In my opinion the newly introduced residence test by UK is a good
example for Sri Lanka too because UK too had similar statutory provision previously.
21
With
the Budget Proposal of 2013 it seems Sri Lanka has identified that there needs to be some

17
Grant Thornton, Statutory definition of tax residence, Proposed frame work for a statutory residence test, Do
you think that the proposed definitions are appropriate?, accessed on 14.01.2013, http://www.grant-
thornton.co.uk/pdf/autumn_statement_2011/Statutory%20definition%20of%20residence%20consultation%20r
esponse.pdf
18
Collin Lau and Andrew Halkyard, From E Commerce to E Business Taxation, International Bureau of Fiscal
Documentation, January 2003, pp 13; Technological changes create new problems, but also make available a
new range of tools to be used, to ensure tax compliance and collection and to improve taxpayer service.
Although issues relating to residence, permanent establishment, income characterization, and the
possibilities
of expanding withholding taxes have tended to dominate the current debate involving e-business, transfer
pricing and consumption taxes are undoubtedly matters that will ultimately be of significant increasing
concern. It is in these areas where the interests of developed and developing countries most obviously
intersect.
19
Rawlinson & Hunter, Statutory definition of tax residence, January 2012, pp 12, accessed on 14.01.2013,
http://www.rawlinson-hunter.com/uploads%5CStatutory%20Definition%20of%20Tax%20Residence%20-
%20January%202012.pdf ; Good record keeping is essential and it will be important to acquire and retain
supporting documentation. If helpful, professional advisers could keep copies of such documentation (as a back
up) and put together a file both showing the steps taken to make the distinct break and providing appropriate
supporting evidence that these steps have occurred.
20
Inland Revenue, New Zealand tax residence Who is a New Zealand resident for tax purposes? ,pp 13,
accessed on 14.01.2013, http://www.ird.govt.nz/resources/a/3/a35bbb804bbe588fbc1efcbc87554a30/ir292.pdf
; If youre leaving New Zealand, or have left New Zealand, you can use the information on our website or speak
with your
tax agent to determine if youre a New Zealand tax resident.
21
Flash International Executive Alert, A publication for Global Mobility and Tax Professionals by KPMGs
International Executive Services Practice, accessed on 14.01.2013,
https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/flash-international-executive-
alert/Documents/flash-international-executive-alert-2011-099-june.pdf ;
Currently there is no single statutory test for residence in the United Kingdom. An individual who is in the U.K.
for 183 days or more in a tax year will be U.K. resident. Someone who spends no time in the U.K. in a tax year is
unlikely to be resident. In other cases, Her Majestys Revenue & Customs (HMRC) and, if necessary, the courts,
determine an individuals residence status from case law principles. Recent cases have demonstrated the
difficulties that can arise fromthis process.


reform in tax residence statutory definitions, but in my opinion it needs to be more
comprehensive and extend the reforms to a higher level of standard which is equivalent to the
UK newly introduced SRT. Another jurisdiction statute that I would relate in my discussion is
South Africa Income Tax Act 1962. With regard to individual tax residence it has two main
tests which are ordinary residence test
22
or the physical presence test.
23
Though this piece of
legislation is not comprehensive as in UK, it still does provide you with list of clarifications
which is useful to determine whether an individual is a tax resident or not. Also it is important
to note that Under South African law, an individual who is a tax resident in another country
cannot be considered tax resident in South Africa.
24
Another jurisdiction that I saw with a
comprehensive, clear tax residence statutory law definition is the Australian jurisdiction. They
have four main tests of residency within the definition of resident in subsection 6(1) of the
Income Tax Assessment Act 1936. They are named as the Resides Test
25
, the Domicile

22
General Information regarding South African residents, accessed on 14.1.2013,
http://www.skandiainternationalknowledgedirect.com/Financial-Planning-Solutions/Country-Specific/Tax-
information-for-South-Africa.html ; This concept means that a person is a resident of South Africa if his/her
permanent home is in South Africa. The South African courts have held that the concept "ordinarily resident" is
described as: * Living in a place with some degree of continuity, apart from accidental or temporary absence. If it
is part of a person's ordinary regular course of life to live in a particular place with a degree of permanence, he/she
must be regarded as ordinarily resident;" * The place where his/her permanent place of abode is, where his/her
belongings are stored, which he/she leaves for temporary absences and to which he/she regularly returns after
these absences; * A residence that is settled and certain and not temporary and casual; and * Where a person
normally resides, apart from temporary/occasional absences. A person will not be taxable in South Africa on any
income that accrued from a source outside South Africa prior to the date on which he/she becomes ordinarily
resident in South Africa, unless such person is regarded to be a resident by virtue of the physical presence test.
23
General Information regarding South African residents, accessed on 14.1.2013,
http://www.skandiainternationalknowledgedirect.com/Financial-Planning-Solutions/Country-Specific/Tax-
information-for-South-Africa.html ; If an individual is not classed as ordinarily resident they may be regarded as a
South African resident for tax purposes* if they are physically in South Africa for a period exceeding: * 91 days
in aggregate during the year of assessment under consideration; * 91 days in aggregate during each of the five
years of assessment preceding the year of assessment under consideration; and 915 days in aggregate during the
above five preceding years of assessment. All three requirements above have to be met before a person will be
regarded as resident. Partial days are also counted.
24
General Information regarding South African residents, accessed on 14.1.2013,
http://www.skandiainternationalknowledgedirect.com/Financial-Planning-Solutions/Country-Specific/Tax-
information-for-South-Africa.html
25
Australian Tax Residency Guidelines, accessed on 14.01.2013, http://www.exfin.com/australian-tax-residency
; This test provides that whether a person resides in Australia is a question of fact that depends on all the
circumstances of each case, with the following factors to be considered:
If the person returns to the country of origin - the frequency, regularity and duration of those trips and
their purpose can be decisive factors. If the only reason for the person's absence from Australia is
business, this may not be enough in itself to support a claim that the person is not a resident.
The extent of family and business ties which the person has, in Australia and in the country of origin.


Test
26
, the 183 day rule
27
and the Superannuation Test.
28
In my conclusion regarding an
individual tax residence status my suggestion is that Sri Lanka should look forward to those
jurisdictions who have reformed their statutes with regard to this aspect and try formalizing a
comprehensive, simple and clear statutory provision for tax residence, because as I have
explained to you the current status of Sri Lanka though gives a simplicity by surface, it is
complex when it goes into depth of it.
Tax Residence for Companies or body of persons:
The next important factor regarding a place of residence can be attributed to a company or
body of persons.
29
This has been revolved around whether the company resides where the
control and management of its business is exercised.
30
Therefore under Sri Lankan law there

Whether the individual is accompanied by his or her family to Australia and on return trips to the
country of origin.
Whether the person is employed in the country of origin.
Whether a place of abode is still maintained in the country of origin or is available for the person's use
while there.
Whether personal effects are kept in Australia or in the country of origin.
The extent to which any assets or bank accounts are acquired or maintained in Australia and in the
country of origin.
Whether the migrant has commenced or established a business in Australia.
26
Australian Tax Residency Guidelines, accessed on 14.01.2013, http://www.exfin.com/australian-tax-
residency ; An individual is a resident of Australia under the domicile test if he or she has a domicile in Australia
unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia. Under the
Domicile Act 1982 , a person acquires a domicile of choice in Australia if the person intends to make his or her
home indefinitely in Australia. The domicile test is discussed in Taxation Ruling IT 2650. Domicile generally
means the country you were born in unless you migrate to another country - then you adopt a "domicile of
choice".
27
Australian Tax Residency Guidelines, accessed on 14.01.2013, http://www.exfin.com/australian-tax-
residency ; A returning expatriate, or new migrant having regard to their terms of their migrant visa, who is
present in Australia for more than 183 days (continuously or intermittently) in a tax year is, generally speaking, a
resident of Australia under the 183 days test. This is unless the Commissioner is satisfied that his usual place of
abode is outside Australia and that he does not intend to take up residence.
28
Australian Tax Residency Guidelines, accessed on 14.01.2013, http://www.exfin.com/australian-tax-
residency ; This is a statutory test and an alternative to the ordinary tests of residence that is to say that
individuals may be residents under this test when they do not in any way reside in Australia in the ordinary
sense. In effect individuals are deemed to be residents if they are an eligible employee for the purpose of the
Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person.' This test applies
mainly to people working for the Australian Government overseas.
29
Inland Revenue Act No. 10 of 2006, Section 79(1), Where a company or a body of persons has its registered or
principal office in Sri Lanka, or where the control and management of its business are exercised in Sri Lanka, such
company or body of persons shall be deemed to be resident in Sri Lanka for the purposes of this Act.
30
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 304; American Thread Co.
v Joyce 6 TC, 163; Calcutta Jute Mills Co. v Nicholson 1 TC 83; Paulo (Brazilian) Railway Co. v Carter 3 TC 344, 407;
De Beers Consolidated Mines Ltd. v Howe 5 TC 198


will be only two requirements which need to fulfill and they are; company/body of persons has
registered/principal office in Sri Lanka or where the control and management of its business
are exercised in Sri Lanka. Though this statutory provision fulfill a wide range of the concept,
that itself has made it be more complicated by the difficulty of defining the term control and
management. A finding expressed in words which have the same meaning as the words in
the section is sufficient to bring the company within the definition.
31
Past case law decisions
has been used to signify this definition in the control and management of the affairs of the
company,
32
the head and seat of the affairs of the company,
33
and the control of the affairs of
the company.
34
It has been also decided that a company may have several places of business &
only place where the powers of control and management are exercised will be a place of
residence.
35

E. Gooneratne has also made reference to state that where there are two Boards with separate
functions it is necessary to distinguish between acts done by the Directors in performing their
duties under the Companies Act
36
and acts done in earning the profits from the business of the
Company.
37
It is important to note that the control and management of business may be
removed from one country to another without any change in the place of business
38
and the
residence of a company is changed when the control and management is removed from one

31

31
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 306; Egyptian Hotels
Ltd. v Mitchell 6 TC 152, 542
32
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 306; American Thread Co.
v Joyce 6 TC, 163
33
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 306; De Beers
Consolidated Mines Ltd. v Howe 5 TC 198
34
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 306; New Zealand
Shipping Co. v Stephen 5 TC 553
35
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 306; A bank registered
and having its principal place of business in India does not become resident in Sri Lanka by carrying on business
through a Branch Office in Sri Lanka, Bank of Chittinad v. Thambiah 35 NLR 190; A.G. v Alexander and Others 31
LT 694
36
Companies Act No. 07 of 2007
37
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 306; When there is a
single board the place where the business is controlled and managed is readily ascertained by reference to the
place where the Directors meet for the purposes of the business of the Company. A company is permitted by its
Articles can have two Boards, one in the country which the company is registered and the other in the place
where the operations of the business are carried on.
38
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 308; Bradbury v English
Sewing Cotton Co. Ltd 8 TC 481


country to another too.
39
Referring to the registration of a Company under Section 113(1) and
(2) of Companies Act No. 07 of 2007 every company shall have registered.
40
Therefore with
the above discussion that I have made, it is evident that there are two (2) kinds of reforms that
Sri Lanka should look forward to. Firstly, there should be a clear interpretation from the
judiciary to define this context of company been a resident or not and secondly, if it is a
company locally reside to use the control and management test and if it is a unit based foreign
company to use the place of effective management test.
41
In my opinion those two reforms
could lead the statutory provision of tax residence of companies to a clear and less complex
statutory definition of identifying company tax residency. Accordingly I have discussed in this
report the areas that in my opinion which do not have a full statutory definition in Tax
residence and also the areas which are complicated and unclear in Sri Lankan jurisdiction. The
discussion is extended with reference to other jurisdictions and suggested the reforms that Sri
Lankan regime could have, for a clear and less complicated tax residence statutory definition

By:- Jayani De Silva
LL.B. (Hons) (Colombo)




39
E. Gooneratne, Income Tax in Sri Lanka, Aitken Spence Printing, 2
nd
edition, 2009, pp 308; American Thread Co.
v Joyce 6 TC 1, 163
40
The resident or non-resident status of a tax payer, accessed on 14.01.2013, http://www.ft.lk/2011/11/15/the-
resident-or-non-resident-status-of-a-taxpayer/ ; Under section 113(1) and (2) of Companies Act No. 07 of 2007,
every company shall have a registered office to which all communications and notices may be addressed; the
registered office at a particular time is the place that is described in the register as the companys registered
office.
41
Collin Lau and Andrew Halkyard, From E Commerce to E Business Taxation, International Bureau of Fiscal
Documentation, January 2003, pp 05; In the OECD Model Tax Convention, the place of effective
management is used as a tie-breaker rule to determine corporate residence.

You might also like