What counts as a business purpose for a transaction?
A reason that would still make the transaction worth doing if the tax result were neutral. Raising outside funding, ring-fencing a liability, satisfying a lender or a regulator, admitting a new partner, separating businesses with different risk profiles, preparing for a sale: each of those can be described without mentioning tax, and each leaves a trail somebody else created. A purpose that can only be stated in tax terms is not a business purpose, however genuinely it was held. The test for a draft rationale is whether a reader outside the company would recognise it as a commercial decision.
Can I write the business purpose memo after the transaction?
You can, and it is better than having nothing, but understand what it is worth. The requirement is that the commercial rationale existed and was documented at the time, so a memorandum produced later is evidence of your present explanation rather than of the original decision. Where the transaction has already happened, the stronger material is whatever was created at the time and for another reason: board minutes, emails, lender correspondence, valuations, the paperwork of the alternatives you did not take. Gather those first, then write the memorandum around them rather than in place of them.
Does it matter that tax was one of our reasons?
No. Transactions routinely have several reasons and tax being among them is ordinary. What matters is whether the commercial reason stands up on its own, so that the transaction would have gone ahead without the tax advantage, perhaps less attractively. Trouble comes from the opposite pattern: a transaction whose shape only makes sense as a route to a tax result, with a commercial reason attached afterwards to explain it. When we draft a rationale we test it by deleting the tax outcome and asking whether anything remains that a board would have approved.
What documents do you ask for to test business purpose?
Board and shareholder minutes for the period, not only the resolution that implemented the step; the papers put before that meeting; correspondence with lenders, investors, regulators or purchasers; valuations and forecasts prepared at the time; any external condition that set the timing; and the drafts of alternatives considered and abandoned. We also ask who made the decision and then speak to them, because a rationale nobody in management recognises is a weak rationale whatever the file says. Dates matter throughout, since the point is to show the reasoning existed before the outcome did.
Is a lender requirement a good enough business reason?
It is one of the more useful kinds, because it is a commercial requirement documented by somebody with no interest in your tax position. The same is true of a regulator condition, a purchaser requirement in a sale process, or an insurer one. The value sits in the third-party document, so keep the letter or term sheet with the transaction file rather than relying on a description of it. Where the requirement was given by telephone, a note made at the time, or an email back confirming it, turns a recollection into something that can be produced later.
Who should sign off the commercial rationale for the file?
The people who actually made the decision, in words they would use themselves. A rationale drafted by an adviser and adopted unread is easy to spot: it uses vocabulary the business does not use, and it does not survive a conversation with the director whose name is on it. Our practice is to draft from a discussion with those directors, return it for them to correct, and keep the corrected version. That produces a document which reads as the record of a decision, because that is what it is.
How would a foreign tax authority know I am resident there?
Mostly from information you or your bank already provided. Account-opening forms ask you to self-certify tax residence, and that certification is reported between authorities under the Common Reporting Standard or, for US accounts, under the FATCA framework. Beyond that: employer and payroll filings, property registries, immigration records and the tax filings of anyone who paid you. The realistic planning assumption is that the data arrives. See FATCA and information reporting.
Is double taxation legal?
Yes. Nothing prevents two countries from taxing the same income under their own domestic law — each is exercising its own jurisdiction. What treaties and credit systems do is relieve the outcome rather than prohibit the charge, and relief is generally something you must claim on a return or a form, not something applied automatically. Miss the claim and the double charge stands. Double taxation explains the mechanism.
