Individuals, whether of British or foreign nationality, who reside in the UK are, in principle, taxable on their worldwide employment income. Many US executives who are "seconded" by their US employer to work in the UK may therefore become UK tax resident.

Such US executives who have not been UK residents in the three previous tax years and are not UK domiciled need not pay UK tax on their overseas earnings if they do not bring the income to the UK. Other US executives resident in the UK over the longer term may incur liability for UK tax on their overseas income unless their employer structures their employment duties under separate employment contracts, one with the UK subsidiary for their UK duties and another with the US parent for their overseas duties. These have become known as "dual contracts." If the non-UK domiciled executive keeps the income earned under the overseas contract outside the UK, no UK income tax should arise on that income. He or she will pay UK income tax on the income earned in the UK under his or her UK contract.

In December 2013 HM Government announced that it would be clamping down on the artificial use of dual contracts for longer-term UK residents and has now published draft legislation that makes offshore employment income in a dual-contract arrangement taxable in the UK in certain cases.

US corporations should urgently review the use of dual contracts for their non-UK domiciled executives seconded to their UK subsidiaries before the 6 April 2014 start date. The proposed legislation is widely drafted and has the potential to catch even genuine dual-contract arrangements. If one of the dual contracts is with a group employer in a low-tax jurisdiction, that contract may be especially vulnerable. Dual contracts will not necessarily become extinct, but in the future, careful cross-border tax advice should be sought in their structuring.

For more information about the new anti-avoidance rules and their potential impact on your company, please download the attachment below.