ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Edwin Johnson and Upper Tribunal Judge Jonathan Cannan
[2024] UKUT 58 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE NEWEY
and
LORD JUSTICE ARNOLD
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(1) GEOFFREY RICHARD HAWORTH (2) IAN FRANCIS LENAGAN (3) SG KLEINWORT HAMBROS TRUST COMPANY (UK) LIMITED (formerly known as KLEINWORT BENSON TRUSTEES LIMITED) (as Trustee of the IFL 1991 S&A TRUST) |
Appellants |
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- and - |
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THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
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Christopher Stone KC and Hitesh Dhorajiwala (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 10 and 11 June 2025
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Crown Copyright ©
Lord Justice Newey:
Basic facts
The statutory framework
"Capital gains from the alienation of any property other than that mentioned in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident."
"Contracting State" was defined in Article 3 to refer to the United Kingdom and Mauritius, and paragraphs (1), (2) and (3) of Article 13 have no application in the present case.
"(1) For the purposes of this Convention, the term 'resident of a Contracting State' means, subject to the provisions of paragraphs (2) and (3) of this Article, any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. The terms 'resident of the United Kingdom' and 'resident of Mauritius' shall be construed accordingly.
(2) Where by reason of the provisions of paragraph (1) of this Article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall determine the question by mutual agreement.
(3) Where by reason of the provisions of paragraph (1) of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated."
"(1) Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
(2) If the place of effective management of a shipping enterprise is aboard a ship then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident …."
Article 27 provided for "Mutual agreement procedure". It explained:
"(1) Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident.
(2) The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.
(3) The competent authorities of the Contracting State shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention, with the object of facilitating any appropriate adjustment of liability.
(4) The competent authorities of the Contracting State may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs."
"The terms 'resident of the UK' and 'resident of the Colony' [defined as the Colony of Mauritius and its Dependencies] mean respectively any person who is resident in the United Kingdom for the purposes of UK tax and not resident in the Colony for the purposes of Colonial tax and any person who is resident in the Colony for the purposes of Colonial tax and not resident in the United Kingdom for the purposes of UK tax; and a company shall be regarded as resident in the United Kingdom if its business is managed and controlled in the United Kingdom and as resident in the Colony if its business is managed and controlled in the Colony."
The tax planning
"(2) As regards the S&A Trust, pursuant to s 277 [of the TCGA], article 13(4) [of the Treaty] would apply to prevent there being any gain accruing to the trustees in respect of the shares which is chargeable under s 2.
(3) As regards the GH Trust and the IFL Trust:
(a) Where, as here, the conditions for s 77 to apply are met, that section provides that there shall be treated as accruing to the 'settlor' 'any remaining amount of the chargeable gains which accrue to the trustees' after deduction of certain sums (as provided for by s 2(2)) 'on which the trustees would, disregarding s 3, be chargeable to tax for the year in respect of those gains' (see s 77(1)(b)).
(b) Pursuant to s 277, article 13(4) would apply to prevent there being any such 'remaining amount of the chargeable gains....' within the meaning of s 77(1)(b) so that there is nothing which s 77(1) can treat as accruing to Mr Haworth and Mr Lenagan, as settlors of those trusts."
The decisions below
The FTT
"(a) whether article 13(4) [of the Treaty] applies is to be assessed by asking whether each of the family trusts, as the 'alienator' of the shares, was a 'resident' of the UK or Mauritius for the purposes of article 13(4) at the material time (which I take to be during the relevant period), (b) that falls to be determined under the tie-breaker as each family trust was a 'resident of' the UK and Mauritius at the material time under the treaty residence test, (c) under the tie-breaker, POEM of the family trusts was in the UK throughout the relevant period, and (d) therefore, each family trust, as the 'alienator' of the shares was 'a resident of' the UK at the material time for the purposes of article 13(4) and, that article applies to preserve the UK's right to subject the gains arising on the disposal of the shares to CGT."
"Whatever the basis for the distinction, I consider that (a) it is plain from the decision of the majority of the Court of Appeal in Smallwood that in determining where the POEM of the trustees of the family trusts, as a deemed trustee body, is located it is appropriate to have regard to the general approach set out by the Commissioners in Smallwood and not to the reasoning in Wood v Holden (as the relevance and applicability of that reasoning is interpreted by the Court of Appeal in Smallwood) and (b) on that basis, … the POEM of the trustees of the family trusts as a deemed trustee body was in the UK during the relevant period."
In paragraph 4 of its decision, the FTT had defined "the relevant period" as that from 26 or 30 June 2000 until 24 October 2000.
"The evidence demonstrates that:
(1) There was an overall single plan for the sale of the shares in a tax efficient manner which was devised, decided upon, facilitated, orchestrated and superintended in the UK by the settlors and their UK advisors, as assisted by the PC [i.e. Pinsent Curtis] trusts team (who I regard as having a dual role, for the reasons already given) on an on-going basis throughout the relevant period.
(2) It was integral to the plan that the Mauritius trustees would be in place as trustees of the family trusts for a brief period only for the purpose of implementing the plan as was in fact the case.
(3) The Mauritius trustees were appointed by the settlors as trustees of the family trusts in the confident expectation that they would implement the plan by taking all the actions considered to be necessary for it to succeed (namely, their agreement to the merger and sale of the shares on the flotation, their approval of the various appointments, their approval of actions considered necessary to ensure the family trusts were resident in Mauritius, and their retirement in favour of UK trustees).
(4) The decisions involved in initiating, orchestrating, superintending and refining this plan on an on-going basis, taken by the UK settlors and their UK advisors (as to some extent assisted by the PC trusts team), constituted effective or, as the Commissioners put it in Smallwood, the 'top-level' management of the family trusts during the relevant period.
(5) The decisions made by the Mauritius trustees to effect the individual actions required to implement the overall single plan constituted merely 'day to day' management of or administration of this plan or, as the Commissioners put it in Smallwood, lower level decisions by, the Mauritius trustees, as the trustee for the time being appointed specifically to effect these actions."
The Upper Tribunal
"The FTT stated that it was applying the general approach of the [Special Commissioners] in Smallwood, without reference to the test for central management and control described in Wood v Holden. We are satisfied that the FTT applied the test for POEM described by the [Special Commissioners] at [130]. It considered 'in which state the real top level management (or the realistic, positive management) of the trustee qua trustee is found'. In applying that test the FTT did not use the tool of Wood v Holden and in light of the judgment of Hughes LJ in Smallwood it was entitled to take that approach."
The appeal
"Central management and control"
"But it is clearly established that the majority of directors and life governors live in England, that the directors' meetings in London are the meetings where the real control is always exercised in practically all the important business of the company except the mining operations. London has always controlled the negotiation of the contracts with the diamond syndicates, has determined policy in the disposal of diamonds and other assets, the working and development of mines, the application of profits, and the appointment of directors. London has also always controlled matters that require to be determined by the majority of all the directors, which include all questions of expenditure except wages, materials, and such-like at the mines, and a limited sum which may be spent by the directors at Kimberley."
"In applying the conception of residence to a company, we ought, I think, to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. An individual may be of foreign nationality, and yet reside in the United Kingdom. So may a company. Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. The decision of Kelly C.B. and Huddleston B. in the Calcutta Jute Mills v. Nicholson and the Cesena Sulphur Co. v. Nicholson, now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule, and the real business is carried on where the central management and control actually abides."
Lord Loreburn LC went on to say, at 458, that whether the case before the House of Lords fell within the rule was "a pure question of fact to be determined, not according to the construction of this or that regulation or bye-law, but upon a scrutiny of the course of business and trading".
"i) The overarching principle is that a company resides for tax purposes where its real business is carried on, and that is where CMC actually abides;
ii) The principle applies in relation to subsidiaries, including special purpose vehicles;
iii) It is the actual place of management, not that in which it ought to be managed, which fixes the residence of a company;
iv) A company may be resident in a jurisdiction other than that of its incorporation not only where a constitutional organ exercises management and control elsewhere, but if the functions of the company's constitutional organs are usurped, in the sense that management and control is exercised independently of, or without regard to, its constitutional organs, or if an outsider dictates decisions (as opposed to merely proposing, advising and influencing decisions);
v) On the other hand, CMC of a subsidiary will not be taken to be in a jurisdiction other than that of its incorporation just because it is following a tax planning scheme propounded by its parent. Nor need it matter that a company's board takes decisions without full information or even in breach of the directors' duties;
vi) Events before or after the particular date in question may be relevant as casting light on the position on that date; and
vii) Where a company is resident is essentially a question of fact."
"In seeking to determine where 'central management and control' of a company incorporated outside the United Kingdom lies, it is essential to recognise the distinction between cases where management and control of the company is exercised through its own constitutional organs (the board of directors or the general meeting) and cases where the functions of those constitutional organs are 'usurped' - in the sense that management and control is exercised independently of, or without regard to, those constitutional organs. And, in cases which fall within the former class, it is essential to recognise the distinction (in concept, at least) between the role of an 'outsider' in proposing, advising and influencing the decisions which the constitutional organs take in fulfilling their functions and the role of an outsider who dictates the decisions which are to be taken. In that context an 'outsider' is a person who is not, himself, a participant in the formal process (a board meeting or a general meeting) through which the relevant constitutional organ fulfils its function."
"My Lords, in my opinion a registered company can have more than one residence for the purposes of the Income Tax Acts. It has often been pointed out that a company cannot in the ordinary sense 'reside' anywhere, and that in applying the conception of residence to a company it is necessary (as Lord Loreburn said in the De Beers case) to proceed as nearly as possible upon the analogy of an individual ….
The effect of this decision is that, when the central management and control of a company abides in a particular place, the company is held for purposes of income tax to have a residence in that place: but it does not follow that it cannot have a residence elsewhere. An individual may clearly have more than one residence … ; and on principle there appears, to be no reason why a company should not be in the same position. The central management and control of a company may be divided, and it may 'keep house and do business' in more than one place; and if so, it may have more than one residence."
In the same vein, Lord Buckmaster said at 519, "For the purposes of our income tax the real and not a merely nominal residence was here, and if there were also residence elsewhere that did not displace it".
"There is nothing impossible in finding CMC in two countries, in spite of the word 'central.' Suppose South Africa had an income tax in 1900–01 and applied CMC as its residence rule, would a court there have decided that the CMC of De Beers was in South Africa? Taking the facts from (1906) 5 TC 198, the head office according to the articles was in South Africa; the chairman (Cecil Rhodes) and nine of the 16 ordinary directors were there and two more travelled between London and South Africa; the technical management of the operations at the mines were decided by the directors at Kimberley who met weekly (but who were to consult the London directors on matters of exceptional importance); and the Kimberley directors could incur other expenditure up to £25,000 [we calculate that this is equivalent to £1.8m today according to the retail price index], plus another £50,000 with Cecil Rhodes' personal approval in special circumstances. We consider that CMC would also have been found in South Africa. But these facts which were before the House of Lords did not prevent its CMC being in the United Kingdom."
Interpreting treaties
"Article 31
General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
Article 32
Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) Leaves the meaning ambiguous or obscure; or
(b) Leads to a result which is manifestly absurd or unreasonable."
"Put shortly, the aim of interpretation of a treaty is therefore to establish, by objective and rational means, the common intention which can be ascribed to the parties. That intention is ascertained by considering the ordinary meaning of the terms of the treaty in their context and in the light of the treaty's object and purpose. Subsequent agreement as to the interpretation of the treaty, and subsequent practice which establishes agreement between the parties, are also to be taken into account, together with any relevant rules of international law which apply in the relations between the parties. Recourse may also be had to a broader range of references in order to confirm the meaning arrived at on that approach, or if that approach leaves the meaning ambiguous or obscure, or leads to a result which is manifestly absurd or unreasonable."
i) commented in paragraph 58 that "[t]he contemporary background of a treaty, including the legal position preceding its conclusion, can legitimately be taken into account as part of the context relevant to the interpretation of its terms"; and
ii) explained in paragraphs 110 and 111 that it is "the ordinary (contextual) meaning which is relevant" and that, "[a]s Robert Walker J observed at first instance in Memec [1996] STC 1336 at 1349, 71 TC 77 at 93, a treaty should be construed in a manner which is 'international, not exclusively English'", reflecting the fact that "a treaty is a text agreed upon by negotiation between the contracting governments".
"The language of an international convention has not been chosen by an English parliamentary draftsman. It is neither couched in the conventional English legislative idiom nor designed to be construed exclusively by English judges. It is addressed to a much wider and more varied judicial audience than is an Act of Parliament that deals with purely domestic law. It should be interpreted, as Lord Wilberforce put it in James Buchanan & Co. Ltd. v. Babco Forwarding & Shipping (U.K.) Ltd. [1978] A.C. 141, 152, 'unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation.'"
See, too, Inland Revenue Commissioners v Commerzbank AG [1990] STC 285 ("Commerzbank"), at 285 (proposition (2)), per Mummery J, and Memec plc v Inland Revenue Commissioners [1998] STC 754, at 766, per Peter Gibson LJ.
"The OECD Commentaries are updated from time to time, so that they may (and do in the present case) post-date a particular double taxation treaty. Nonetheless they are to be given such persuasive force as aids to interpretation as the cogency of their reasoning deserves: see Revenue and Customs Comrs v Smallwood [2010] STC 2045, para 26(5), per Patten LJ."
Versions of the OECD Commentaries post-dating the treaty at issue are thus to be "treated in a similar way to academic commentaries": see GE Financial Investments, at paragraph 43, per Falk LJ. See, too, Commerzbank, at 298 (proposition (5)), per Mummery J, and Royal Bank of Canada v Revenue and Customs Commissioners [2025] UKSC 2, [2025] 1 WLR 939, at paragraph 32, per Lady Rose.
"[28] It is important, in my view, to identify what arts 4 and 13 are designed to achieve in the context of the DTA [i.e. the Treaty] because … this largely colours the interpretation of the provisions themselves. But for the treaty, residents of the UK and Mauritius or companies operating in both territories would be exposed to the risk of taxation on their income and gains under the laws of each contracting state. The 1977 model convention adopted in the DTA eliminates the possibility of double taxation by what the commentary describes as two categories of rules. The first allocates the right to tax by reference to the situs or source of the taxable income or gain or the place where the person in receipt of the profit is treated as resident for tax purposes. The second category of rules (represented by art 24) comes into play when the first set of rules leaves both contracting states as eligible to tax the same gain and operates by allowing tax payable in one contracting state to be credited against the taxpayers' liabilities in the other.
[29] As explained earlier, the provisions of the DTA are given statutory effect in relation to the taxpayers concerned by s 788 [of the Income and Corporation Taxes Act 1988] as a form of relief against what would otherwise be the relevant tax liability under UK law. But the DTA is not concerned to alter the basis of taxation adopted in each of the contracting states as such or to dictate to each contracting state how it should tax particular forms of receipts. Its purpose is to set out rules for resolving issues of double taxation which arise from the tax treatment adopted by each country's domestic legislation by reference to a series of tests agreed by the contracting states under the DTA. The criteria adopted in these tests are not necessarily related to the test of liability under the relevant national laws and are certainly not intended to resolve these domestic issues."
The OECD's Model Convention and Commentaries
"21. This paragraph concerns companies and other bodies of persons, irrespective of whether they are or not legal persons. It may be rare in practice for a company, etc. to be subject to tax as a resident in more than one State, but it is, of course, possible if, for instance, one State attaches importance to the registration and the other State to the place of effective management. So, in the case of companies, etc., also, special rules as to the preference must be established.
22. It would not be an adequate solution to attach importance to a purely formal criterion like registration. Therefore paragraph 3 attaches importance to the place where the company, etc. is actually managed.
23. The formulation of the preference criterion in the case of persons other than individuals was considered in particular in connection with the taxation of income from shipping, inland waterways transport and air transport. A number of conventions for the avoidance of double taxation on such income accord the taxing power to the State in which the 'place of management' of the enterprise is situated; other conventions attach importance to its 'place of effective management', others again to the 'fiscal domicile of the operator'. Concerning conventions concluded by the United Kingdom which provide that a company shall be regarded as resident in the State in which 'its business is managed and controlled', it has been made clear, on the United Kingdom side, that this expression means the 'effective management' of the enterprise.
24. As a result of these considerations, the 'place of effective management' has been adopted as the preference criterion for persons other than individuals."
"The commentary in Article 4 paragraph 3 of the OECD Model records the UK view that, in agreements (such as those with some Commonwealth countries) which treat a company as resident in a state in which 'its business is managed and controlled', this expression means 'the effective management of the enterprise'. More detailed consideration of the question in the light of the approach of continental legal systems and of community law to the question of company residence has led HMRC to revise this view. It is now considered that effective management may, in some cases, be found at a place different from the place of central management and control. This could happen, for example, where a company is run by executives based abroad, but the final directing power rests with non-executive directors who meet in the UK. In such circumstances the company's place of effective management might well be abroad but, depending on the precise powers of the non-executive directors, it might be centrally managed and controlled (and therefore resident) in the UK."
"The formulation of the preference criterion in the case of persons other than individuals was considered in particular in connection with the taxation of income from shipping, inland waterways transport and air transport. A number of conventions for the avoidance of double taxation on such income accord the taxing power to the State in which the 'place of management' of the enterprise is situated; other conventions attach importance to its 'place of effective management', others again to the 'fiscal domicile of the operator'."
"As a result of these considerations, the 'place of effective management' has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity's business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions, the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time."
"As a result of these considerations, the place of effective management' has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time."
"Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States."
Discussion
"Concerning conventions concluded by the United Kingdom which provide that a company shall be regarded as resident in the State in which 'its business is managed and controlled', it has been made clear, on the United Kingdom side, that this expression means the 'effective management' of the enterprise."
That, he argued, showed that at the time the Treaty was concluded "effective management" was understood to be located where a company's business was "managed and controlled" or, in other words, in the place of its CMC.
"111. There was thus some debate about whether, or to what extent, POEM differed from CMC. We consider that this misses the point; the two concepts serve entirely different purposes. CMC determines whether a company is resident in the United Kingdom or not; POEM is a tie-breaker the purpose of which is to resolve cases of dual residence by determining in which of two states it is to be found. CMC is essentially a one-country test; the purpose is not to decide where residence is situated, but whether or not it is situated in the United Kingdom, even though courts do sometimes express their decisions in terms of a company being resident in a particular foreign jurisdiction, as was the case in Wood v Holden. There is nothing impossible in finding CMC in two countries, in spite of the word 'central.' …
112. POEM, on the other hand, must be concerned with what happens in both states since its purpose is to resolve residence under domestic law in both states, caused for whatever reason, which could include incorporation in one state and management in the other, or different meanings of management applied in each state, or different interpretations of the same meaning of management applied in each state, or divided management. One must necessarily weigh up what happens in both states and according to the ordinary meaning to be given to the terms of the treaty in their context (to quote art 31 of the Vienna Convention on the Law of Treaties) decide in which state the place of effective management is found."
"Under article 4(3) of the double tax convention Eulalia would be deemed to be a resident of the state 'in which its place of effective management is situated'. It is not clear - at least, not clear to me - whether the article 4(3) test differs in substance from the De Beers test; and, if the two tests are not, in substance, the same, I find it very difficult to see how, in the circumstances which the commissioners had to consider, they could lead to different answers."
Returning to the subject of POEM in paragraph 44, Chadwick LJ said:
"I would uphold the judge's decision to reverse the commissioners' finding as to the residence of Eulalia on the basis of the central management and control test. That makes it unnecessary for me to consider what the position would have been if the effective place of management test posed by the double tax convention had become relevant. I have already indicated that I find it very difficult to see how, in the circumstances of this case, the two tests could lead to different answers."
"I confess that I am not persuaded that realistically the place of effective management of the settlement was in the Republic of Ireland. I emphasise the adjective 'effective'. In my opinion it is not sufficient that some sort of management was carried on in the Republic of Ireland such as operating a bank account in the name of the trustees. 'Effective' implies realistic, positive management."
"The facts surrounding the appointment of PMIL lead us to the view that the real top level management, or the realistic, positive management of the trust, remained in the United Kingdom. We accept that the administration of the trust moved to Mauritius but in our view the 'key' decisions were made in the United Kingdom."
Expanding on this, the Special Commissioners said:
"143. We fully accept that the decision to sell the shares that day was taken by the directors of PMIL at the telephone meeting on 10 January 2001. We also accept that if, for example, the price of the shares had fallen to a level that meant that no gain would be realised on their disposal, the shares would not have been sold but would have been retained and perhaps sold later. Nevertheless, in our view this was a lower level management decision as there was no doubt that the shares would be sold; the real top level management decisions, or the realistic, positive management decisions of the trust, to dispose of all the shares in a tax efficient way, had already been, and continued to be, taken in the United Kingdom. The 'key' decisions were made in the United Kingdom.
144. Finally the events after the sale of the shares confirm our view. The tax planning exercise was completed by the appointment of United Kingdom trustees ….
145. We conclude that the state in which the real top level management, or the realistic, positive management of the trust, or the place where key management and commercial decisions that were necessary for the conduct of the trust's business were in substance made, and the place where the actions to be taken by the entity as a whole were, in fact, determined between 19 December 2000 and 2 March 2001 was the United Kingdom."
"This was on the basis that it is in respect of the Mauritius period that the trustees are chargeable to tax in both contracting states. The Special Commissioners were not asked to consider the issue of POEM over any longer period of time and made no findings of fact in respect of that."
"[66] On the issue of POEM, with suitable hesitation, I respectfully differ from Patten LJ.
[67] The Special Commissioners' conclusion on the issue of POEM was one of fact. The taxpayers can succeed on their cross-appeal only if the Special Commissioners reached a conclusion of fact which was simply not available to them, and thus made an error of law: Edwards (Inspector of Taxes) v Bairstow (1955) 36 TC 207, [1956] AC 14.
[68] If the question were the POEM of the particular trust company trustee for the time being at the moment of disposal, namely PMIL, then it may be that the reasoning in Wood v Holden (Inspector of Taxes) … would justify the conclusion that the commissioners fell into this kind of error. I agree that their findings do not go so far as findings that the functions of PMIL were wholly usurped, and I agree that Wood v Holden reminds us that special vehicle companies (or, no doubt, special vehicle boards of trustees) which undertake very limited activities are not necessarily shorn of independent existence; indeed they would be ineffective for the purpose devised if they were.
[69] But it seems to me that to apply this reasoning to the present case is to ask the wrong question, and indeed to return to the rejected snapshot approach. The taxpayers with whom we are concerned under s 77 are the trustees. Trustees are, by s 69(1) TCGA 1992, treated as a continuing body:
'In relation to settled property, the trustees of the settlement shall for the purposes of this Act be treated as being a single and continuing body of persons (distinct from the persons who may from time to time be the trustees), and that body shall be treated as being resident and ordinarily resident in the United Kingdom unless the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the United Kingdom.'
The POEM with which this case is concerned is, as it seems to me, the POEM of the trust, ie of the trustees as a continuing body. That is the question which the Special Commissioners addressed: see their paras 140 and 145.
[70] On the primary facts which the Special Commissioners found at paras 136–145, … I do not think that it is possible to say that they were not entitled to find that the POEM of the trust was in the United Kingdom in the fiscal year in question. The scheme was devised in the United Kingdom by Mr Smallwood on the advice of KPMG Bristol. The steps taken in the scheme were carefully orchestrated throughout from the United Kingdom, both by KPMG and by Quilter. And it was integral to the scheme that the trust should be exported to Mauritius for a brief temporary period only and then be returned, within the fiscal year, to the United Kingdom, which occurred. Mr Smallwood remained throughout in the UK. There was a scheme of management of this trust which went above and beyond the day to day management exercised by the trustees for the time being, and the control of it was located in the United Kingdom."
Conclusion
Lord Justice Arnold:
Sir Andrew McFarlane, President of the Family Division: