We are examining whether, given HMRC`s increasingly aggressive approach to alternating contractual agreements, they may one day be effective in minimizing the UK`s tax commitments to non-UK residents. Alternate contractual agreements have always been very useful when a worker is not domiciled in the United Kingdom and performs duties both in the United Kingdom and outside the United Kingdom. They work by sharing employment contracts; one for UK tariffs and the other for non-British duties, usually with two companies in the same group (although the non-British contract must be entered into with a „foreign employer“). Foreign employment must be carried out „totally outside the United Kingdom“, although duties performed in the United Kingdom, which are „incidental“ to duties performed outside the United Kingdom, are carried out for these purposes outside the United Kingdom. The result is that, if effective, all revenues generated outside the UK are not subject to UK tax unless they are „transferred“ to the UK (overall to the UK in one way or another). It goes without saying that there may be tax pressure in the country where non-British tariffs are applied. Difficulties It has always been difficult to convince HMRC that there is a separate employment contract outside the UK, whose obligations are „fully fulfilled outside the UK“. Indeed, it is essential that there be two totally distinct and distinct jobs, with distinct roles. This can often be difficult to prove. It would not be enough, for example, for a director of human resources in the United Kingdom to assume duties under an employment contract and then act under a separate employment contract, for example as a director of staff in the rest of Europe. To support the case of two separate entities, HMRC generally considers the following factors: separate email addresses, reporting lines, business cards, phone extensions, etc.
would at least be necessary. Any employment contract should also make it clear that the responsibilities of individuals are very different in each jurisdiction. In April 2005, Hmrc issued a tax bulletin in which dual-contract contracts were to be challenged on the grounds that employers simply allocate geographic locations for the same tasks instead of sharing different roles. The content of HMRC`s interpretation raises doubts about the effectiveness of alternating contractual agreements. This includes, for example, a worker who „fulfills some of the essential obligations of his foreign employment during his employment relationship abroad in the UNITED Kingdom – for example, the response to an urgent appeal by the United Kingdom.“