The Decision Map: Auditing Taxable Presence Before an Overseas Secondment

When a UK mid-market board approves a senior appointment abroad, the immediate questions tend to be practical: payroll, immigration, accommodation and local employment law. Taxable presence is often deferred to a later stage, as though it were a matter for the day a subsidiary is incorporated. In practice, a permanent establishment can arise from what a team does, where it does it and who has authority to commit the business. The tax exposure may begin before the local plaque is mounted.

Legal form is a lagging indicator

A subsidiary is a legal structure. A permanent establishment is a tax concept. The two are related, but they are not interchangeable. Under the OECD Model Tax Convention and the double tax treaties the UK negotiates, a taxable presence can arise through a fixed place of business, through a dependent agent, or through certain project or service activities that exceed agreed thresholds. A local company may hold the employment contracts while the UK parent still creates a permanent establishment through the activities of the people it sends abroad.

For a board, the useful distinction is between the entity chart and the decision map. The entity chart records what has been incorporated. The decision map records where revenue-generating decisions are actually made. The second is the more reliable early warning system.

Begin with decision geography, not headcount

A pre-travel audit should start with functions. For each overseas role, the board should ask what the individual will negotiate, approve, sign or control. A commercial lead who regularly concludes contracts in the company's name is a different risk from a project engineer who supervises installation under a fixed-price contract. Both may be necessary; they do not create the same tax profile.

The practical tool is a three-column schedule. The first column lists the core activities of the business: customer negotiation, pricing approval, contract signature, inventory control, supplier selection, local hiring, service delivery. The second records where each activity will take place. The third records who has authority to make the final decision. If the third column repeatedly points overseas, the board has a question to answer, even if no local entity exists.

Travel patterns belong in the same review. The familiar 183-day test is not the only threshold. A pattern of habitual contract conclusion in a treaty jurisdiction can matter more than a day count. Boards should therefore examine the calendar alongside the organisation chart.

Read the treaty, then read the protocol

Treaty language varies. Some UK treaties define a fixed place of business narrowly; others include service permanent establishments or specific project thresholds. The dependent-agent clause may be drafted with subtle differences in the words 'habitually' and 'in the name of'. Protocols and subsequent amendments can change the result. The OECD's multilateral instrument has also modified the application of many treaties.

A board should not rely on a summary table or a general assumption that 'we have a treaty, so we are protected'. The correct sequence is to identify the relevant UK treaty, read the operative clauses, check the protocol and confirm whether any later instrument modifies the position. Local advice should test the conclusion against domestic law and administrative practice. HMRC's own manuals are useful for understanding the UK view, but they do not answer the question in the other jurisdiction.

Agents: authority matters more than title

Local agents and representatives are a common source of unintended presence. A distributor may be characterised as an independent agent, but the label only holds if the relationship is genuinely independent. Exclusive arrangements, close instructions, pricing approval, commission structures and reporting lines can all point towards dependence. If an agent habitually negotiates the essential elements of contracts, or concludes contracts in the company's name, the dependent-agent test may be engaged.

The audit should therefore collect the agency agreement, the authority matrix and evidence of actual practice. Boards should ask whether the agent can bind the company beyond administrative matters, whether key terms require UK approval, and whether the agent's staff present themselves as part of the UK business. A representative office that 'does no business' is a fragile description if the person running it is the first point of contact for customers and routinely shapes the deal.

Keep a board-level decision log

The most valuable defence is contemporaneous reasoning. A decision log is not a set of minutes recording that expansion was approved. It is a record, for each overseas role or arrangement, of the functions to be performed, the location of decision-making, the contracting authority, the premises to be used, the agent's authority and the treaty analysis relied upon.

The log should be owned by the CFO or company secretary, reviewed by legal or tax counsel, and updated before the individual travels. If HMRC or a local adviser later asks why the board treated the arrangement as it did, the company can show the basis on which it proceeded. Reconstructing that reasoning after an enquiry is far less persuasive.

Red flags and proportionate controls

Several patterns deserve closer attention: a senior commercial figure with authority to close deals from a overseas base; repeated travel to the same country and the same desk; a local agent negotiating key terms without written limits; services performed abroad over an extended period under a single contract; and an inactive local entity whose address is used by travelling staff.

The controls are not necessarily elaborate. An authority matrix, a contract-approval workflow, a travel calendar, standard agency clauses and a short treaty memorandum can give the board a defensible position. Local payroll and indirect-tax registrations may also need review, but the permanent establishment question should be answered first because it shapes the rest.

Not every secondment creates a taxable presence. Over-compliance carries its own cost in administrative burden and lost opportunity. The board's task is to identify where the real risk lies, document its conclusion and revisit the position as the arrangement develops. The question is not simply whether the company has an office abroad. It is where the company makes the decisions that produce its revenue.