Haworth – English Court of Appeal finds that the place of effective management of trusts for treaty tie-breaker purposes was in the UK even though their CMC might be in Mauritius

The UK-resident taxpayers sought to avoid capital gains tax respecting the disposal of shares by family trusts of which they were the settlors by relying on a "Round the World" tax plan. This plan depended upon the trusts being resident in Mauritius at the time of the disposal of the shares and resident in the UK later in that year. During their time of residence in Mauritius, the trusts were required under the plan to have their "place of effective management" (“POEM”) in Mauritius rather than the UK for purposes of the tie-breaker rule for residence of a trust under the Mauritius–United Kingdom Income Tax Convention.

Newey LJ rejected the taxpayers’ submission that the POEM referred to the place of central management and control (“CMC”) which, under Wood v Holden, was a test as to the place at which the relevant decisions were made by the trustees unless that decision-making function had been usurped during the relevant period or an outsider had dictated the relevant decisions to be made by the trustees, which was submitted not to be the case here.

Newey LJ referred to the OECD Commentary, which stated inter alia that 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". He indicated that CMC was not an appropriate test as to the POEM, given that CMC could be exercised in more than one place, whereas the POEM was intended as a tiebreaker concept that could be exercised in only one state.

He further stated:

… [Here] the role of the trustees in Mauritius was effectively pre-determined. … [T]he settlors, albeit with the advice and assistance of advisers, decided to adopt "an overall single plan" and, to that end, exercised their powers to appoint the Mauritius Trustees for a limited period "in the confident expectation that they would implement the plan". While the Mauritius Trustees genuinely made decisions and, in doing so, complied with their responsibilities, there was every reason to believe that they would decide as they in fact did and so further the "overall plan". Even, therefore, during the period in which the Mauritius Trustees were in office, "effective" or "realistic, positive" management was elsewhere. The decisions which the Mauritius Trustees made had been pre-ordained and the Mauritius Trustees were doing no more than the settlors had (with good reason) foreseen. The Mauritius Trustees were (without impropriety) playing their parts in a script which had been written by others.

Neal Armstrong. Summary of Haworth & Ors v Commissioners for His Majesty's Revenue and Customs [2025] EWCA Civ 822 under Treaties – Income Tax Conventions - Art. 4.