The case of Crown Insurance Services brings to the light the many issues now associated with the changing business environment, the questions that arise whether current existing law regrading residence and source is no longer fitting and whether its application may be conducive for cases where misappropriation is intentional. This paper considers some of the questionable reasoning used today by the courts in determining residence and source on companies incorporated overseas.

The case of Crown is not dissimilar to that of Malayan Shipping Co, whereby an Australian resident (Mr Sleigh) the majority shareholder of a taxpayer company incorporated overseas, was considered to be the managing director and agent who alone could decide upon the entering of contracts by the company in Australia. The company was found to derive its income and have tax residency in Australia “despite the directors being non-resident and meeting outside Australia” due to central management and control being held by an Australian resident.
Similarly in Crown several indicators of absolute authority held by an Australian resident were presented, including “All of the proposals were prepared by Mr. Pattenden on his lap top” and “Mr. Pattenden prepared a group insurance proposal and prepared and issued a policy”, these statements seemingly present Mr. Pattenden as being ‘the brains behind operation’. The commissioner pursued this as it had been in Malayan shipping, however several factors prevented the same decision being applied, in particular central management and control was not considered to be in Australia due to Mr. Pattenden residing in Vanuatu. It was noted by the court that “Mr. Pattenden was at pains to ensure that Crown only accepted the various proposals in Vanuatu and that it, in fact, did so”, to a person without legal knowledge this would seem to be indicative of some sort of planned arrangement for tax avoidance, however as case law provides the ratios regarding residence and source, the court is compelled to reason that as “the contracts that were the basis of Crown’s business were made in Vanuatu it remains to consider where performance of those contracts was undertaken. There are two essential elements of performance of those contracts – the receipt of premiums and the payment of claims” this is despite the statements conveying the idea that Mr. Pattenden went increasingly out of his way to make sure that the contracts were approved in Vanuatu as to avoid taxation on what would otherwise be Australian sourced income. The case demonstrates the difficulties associated with establishing both source and residency- especially with the increasing use of technology. It also leads us to question whether current laws are now outdated, this is a theme visited by Kerrie Sadiq in ‘Jurisdiction to tax and the case for threshold reform” in which she states “taxing of multinational entities is one composed of legal concepts and constructs that no longer reflect the economic realities of international business”.

An article posted on the Chartered Accountants website states that “The Commissioner did not put a case regarding voting power” this is an interesting point as Mr. Pattendens’ shareholding in the company for the majority of its life was one hundred percent, therefore were it carrying one a business in Australia his control of voting power as an Australian resident would make the company a resident of Australia as stipulated in s6 (1)(b) of the ITAA 1936. In discussing the current tests for residence, Sadiq mentions the ‘first statutory test of incorporation as replacing the common law proposition that incorporation is not decisive in determining residency of a company” with the assumption ‘that the owners of a company generally incorporate in their own place of residence’ – in Crown, Mr. Pattenden was himself an Australian tax resident who incorporated Crown overseas
The issue of the source of the income was subject matter in the initial case and later on in appeal it was noted that “the sole question on appeal, therefore, is whether the respondent, being a foreign resident, received premium income directly or indirectly from an Australian source during the relevant year, which, because of the provisions of s 6-5(3)(a), is assessable income”. From the case it is evident that the commissioners pursuance of the Crown was an attempt to uncover what they considered to be an arrangement in order to avoid tax on Australian sourced income. It would be interesting whether if further tested, this arrangement could underneath display more characteristics of that of a parent-subsidiary relationship, and if it were then the commissioner may have or have had greater chance of success on appeal as then this may indicate some sort of permanent establishment in Australia and thus where “taxing rights under domestic law may shift from the home jurisdiction to the jurisdiction of the host country”.

The Malayan shipping case dealt with the requirement of central management and control that companies are to carry on a business in Australia, as being a “question of fact” and as such the determination of the cases is only really performed on a case by case basis and when analysing Crown we can see the difficulty

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[ 1 ]. Commissioner of Taxation v Crown Insurance Services Ltd [2012] FCAFC 153
[ 2 ]. Malayan Shipping Co Ltd v. FCT (1946) 71 CLR 156
[ 3 ]. Sadiq, K. ‘JURISDICTION TO TAX AND THE CASE FOR THRESHOLD REFORM’ (2005) Journal of the Australasian Tax Teachers Association, Vol. 1(2), pp. 162-191
[ 4 ]. The institute of Chartered accountants Australia 2013, Australia, accessed 25 September 2013,

[ 5 ]. (b) a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.