Apart from referring to a clear line of case law dealing with this issue, I also pointed out a very clear legislative trend supporting the substance over form and commercial reality approach.I also postulated that there is a creeping sense of fear in advisers that, taken to its ultimate conclusion, would knock the bottom out of tax planning ingenuity. My main focus last week was on the (until now) largely untouched legitimate tax planning opportunities for non-UK domiciliaries. Not that the attack on an arrangement concerning foreign earnings would kill all tax planning for non-UK domiciliaries (although at times in the past this too has looked highly likely) just that it provides more evidence of the importance of the presence of commer-cial reality in achieving tax planning success. In connection with the foreign earnings of non-UK domiciliaries derived from non-resident employers, HM Revenue and Customs’ tax bulletin had this to say in respect of the dual-contract idea: “Where the commercial reality shows the existence of separate employment contracts, it is sometimes argued that contractual terms that prohibit the performance in the UK of duties connected with the business of the overseas employer, preclude the Revenue from arguing that the employee has performed duties of the overseas employment in the UK. These arguments are based on the UK duties being ultra vires.” We do not consider that the presence of such clauses means that we should ignore the performance of duties in the UK that clearly benefit the overseas employer. To that end, both employers ought to be closely monitoring the employee’s UK activities. For example, where the employee has performed substantive duties in the UK that directly benefit the overseas employer, we would expect the UK employer to mark the fact that the employee is effectively abusing its time and to take appropriate disciplinary action. If the UK work in question were valuable, we would not expect the overseas employer to take it into account when calculating bonus entitlement. We think that clauses like this are frequently waived or ignored and may be inserted to create a misleading impression. Where the facts indicate that there is, in commercial reality, only one employment contract whereby the employee performs duties for the benefit of one employer both in and outside the UK, all of the employee’s general earnings will be taxable under section 21 ITEPA. As earnings attributable to overseas duties will not be chargeable overseas earnings, tax will be charged on receipt rather than on remittance to the UK. The identity of the “employer” will depend on all the facts and circumstances of the individual case. However, the UK entity that receives the benefit of an individual’s services will be obliged to apply PAYE to all payments of PAYE income made to the employee during the period that the employee works for that entity. This is because the UK entity will either be the employer or (for the purposes of section 689 ITEPA) the relevant person. If there are genuine separate employments but the employee has performed substantive duties in the UK for the overseas employer, then all earnings from the overseas contract will be taxable under section 21 in the relevant year. They will not qualify as chargeable overseas earnings under section 22 because the duties of employment with a foreign employer will not have been performed wholly outside the UK in the year in question. There is unlikely to be an obligation to operate PAYE on earnings from the foreign employer, as that employer will not have the necessary presence in the UK for PAYE purposes and the UK employer will not be the relevant person in relation to duties performed by the employee under the separate overseas employment.” This latest iteration from HMRC reinforces the “substance over form” or “commercial reality” approach – in other words, if the “reality” of the situation reflects genuineness and commercial reality, the desired tax outcome is likely to be forthcoming in the absence of any other specific legislation preventing this. HMRC appears to be very conscious of the rule that states: “If it looks too good to be trueâ¦it probably is.” Advisers are, I believe, becoming well aware of this too in both investment and tax matters. To close on a more positive note, the position for non-UK domiciliaries in respect of non-UK income and capital gains is a little better known by UK advisers. For investment income and capital gains from non-UK sited assets, non-UK domicile status remains valuable. The remittance basis clearly applies to income and capital gains while non-UK domicile status is retained. This means that holding non-UK investments offshore and not remitting gains or income will be highly tax attractive. Running separate accounts to hold (respectively) original capital, gains and income and only remitting from the first remains an effective strategy. Special care needs to be exercised where the overseas investment is a bank account in a jurisdiction that adheres to the terms of the EU savings directive (in force from July this year) and especially where the jurisdiction is one of the so-called “third countries” which have opted initially to withhold tax rather than share information. It is also worth bearing in mind, in this context, that gains under offshore bonds are not assessed on the remittance basis. Finally, non-UK domiciliaries will, generally speaking, only be subject to inheritance tax on UK-sited assets.