Geoffrey Richard Haworth & Ors v The Commissioners for HMRC

Neutral Citation Number: [2025] EWCA Civ 822 IN THE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER) Mr Justice Edwin Johnson and Upper Tribunal Judge Jonathan Cannan [2024] UKUT 00058 (TCC) Case No: CA-2024-001186 Royal Courts of Justice Strand, London, WC2A 2LL Date: 01/07/2025 Before: SIR ANDREW MCFARLANE, PRESIDENT OF THE FAMILY DIVISION LORD JUSTICE NEWEY and LORD JUSTICE ARNOLD - - - - - - - - - - - - - - - - - - - - - Between: (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) - and - THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS Appellants Respondents - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - James Rivett KC and Ben Elliott (instructed by Levy & Levy) for the Appellants 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 - - - - - - - - - - - - - - - - - - - - - Approved Judgment This judgment was handed down remotely at 10.30am on [date] by circulation to the parties or their representatives by e-mail and by release to the National Archives. ............................. Judgment Approved by the court for handing down. Haworth v HMRC Lord Justice Newey: 1. This appeal concerns the meaning of “place of effective management” (or “POEM”) as that phrase was used in the convention between the United Kingdom and Mauritius (“the Treaty”) to which effect was given by the Double Taxation Relief (Taxes on Income) (Mauritius) Order 1981 1981/1121 (“the 1981 Order”). Basic facts 2. 3. 4. 5. 6. At the beginning of 2000, a family trust (“the GH Trust”) established by the first appellant, Mr Geoffrey Haworth, held shares in a company called TeleWare plc (“TeleWare”) and two family trusts (“the IFL Trust” and “the S&A Trust”) established by the second appellant, Mr Ian Lenagan, held shares in a company called WorkPlace Group Limited (“Workplace”). Each of the three trusts (“the Trusts”) had been established more than a decade earlier, and their trustees were all resident in Jersey. A plan developed to merge TeleWare and Workplace and to list shares in the new company on the London Stock Exchange. As things stood, capital gains tax (“CGT”) would become due on gains which accrued to the Trusts in consequence. In the spring of 2000, however, Mr Maslen, who was Mr Haworth’s tax adviser and also acted for the Jersey trustees of the GH Trust for tax compliance purposes, and Mr Pentelow, who was the tax adviser to Mr Lenagan and his family trusts, consulted counsel. They were advised that CGT could be avoided if (a) the gains were realised at a time when the Trusts had Mauritian trustees and (b) United Kingdom trustees were appointed within the same tax year. Thereafter, Deloitte & Touche Offshore Services Limited (“DTOS”) and Mr Chandra Gujadhur, a director of DTOS, were appointed as the trustees of the GH Trust (with effect from 26 June 2000), the IFL Trust and the S&A Trust (with effect from 30 June 2000 in each case) in place of the Jersey trustees. DTOS and Mr Gujadhur (“the Mauritius Trustees”) were both resident in Mauritius. The merger of TeleWare and WorkPlace proceeded, with the result that by the end of July 2000 the Trusts had all become shareholders in the new company, TeleWork Group plc (“TeleWork”). On 3 August, TeleWork was floated and the Trusts disposed of most of their shares in the company. On 24 October 2000, the Mauritius Trustees resigned as trustees of the Trusts, and trustees resident in the United Kingdom (including the third appellant, now called SG Kleinwort Hambros Trust Company (UK) Limited (“SGKH”)) were appointed instead. The Trusts were all, therefore, resident in the United Kingdom for part of the 2000/2001 tax year. It is common ground, however, that, as a matter of Mauritian domestic law, the Trusts were also resident in Mauritius during part of the year. By amendments made to their tax returns for 2000/2001, HM Revenue and Customs (“HMRC”) sought to impose CGT on Mr Haworth, Mr Lenagan and SGKH in respect of the capital gains arising from the disposals of the Trusts’ shares in TeleWork. Mr Haworth, Mr Lenagan and SGKH appealed, but in a decision dated 1 February 2022 ([2022] UKFTT 34 (TC))) the First-tier Tribunal (Tax Chamber) (Judge Harriet Morgan) (“the FTT”) dismissed the appeals. On 4 March 2024, the Upper Tribunal (Tax and Chancery Chamber) (Edwin Johnson J and Upper Tribunal Judge Jonathan Cannan) affirmed the FTT’s decision: see [2024] UKUT 58 (TCC), [2024] STC 436. Judgment Approved by the court for handing down. Haworth v HMRC 7. Mr Haworth, Mr Lenagan and SGKH now challenge the decisions of the FTT and Upper Tribunal in this Court. There has been previous litigation relating to the GH Trust. In 2016, HMRC gave Mr Haworth “follower” and “accelerated payment” notices pursuant to the Finance Act 2014 requiring him to pay some £8.7 million in respect of the gains which had accrued to the trust when its shares in TeleWork were disposed of. The notices were founded on HMRC’s opinion that the reasoning in the Court of Appeal’s decision in Smallwood v Revenue and Customs Commissioners [2010] EWCA Civ 778, [2010] STC 2045, 80 TC 536 (“Smallwood CA”) would deny Mr Haworth the “tax advantage” he claimed. However, in R (Haworth) v Revenue and Customs Commissioners [2021] UKSC 25, [2021] 1 WLR 3521, the Supreme Court quashed the follower notice on the basis that HMRC had not formed the opinion that there was “no scope for a reasonable person to disagree that the earlier ruling denies the taxpayer the advantage” (see paragraphs 61 and 69 of the judgment of Lady Rose, with whom the other members of the Supreme Court agreed) and had overstated the conclusion in Smallwood CA (see paragraph 75 of the judgment). The statutory framework 8. 9. 10. During the relevant period, section 2 of the Taxation of Chargeable Gains Act 1992 (“the TCGA”) provided for a person to be “chargeable to capital gains tax in respect of capital gains accruing to him in a year of assessment during any part of which he is resident in the United Kingdom”. Chapter II of Part III of the TCGA, comprising sections 68 to 98, was concerned with settlements. By section 69, the trustees of a settlement were to 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 was to be “treated as being 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”. Where the settlor and trustees of a settlement were both resident in the United Kingdom during part of a tax year, section 77 provided for the settlor to be chargeable to tax in place of the trustees if he had an interest in the trust but, by section 78, the settlor could recover tax so paid from the trustees. By section 86, the settlor would also be liable to tax on gains made by the trust if its trustees were never resident or ordinarily resident in the United Kingdom in the relevant tax year, but the settlor retained an interest in the settlement and was “domiciled in the United Kingdom at some time in the year and is either resident in the United Kingdom during any part of the year or ordinarily resident in the United Kingdom during the year”. Section 277 of the TCGA provided that, for the purpose of giving relief from double taxation in relation to CGT, Chapters I and II of Part XVIII of the Income and Corporation Taxes Act 1988 should apply with appropriate modifications. Section 788(1) of that latter Act, which was included in Chapter I of Part XVIII, stated that, if it were declared by Order in Council that arrangements specified in the Order had been made with the Government of a territory outside the United Kingdom with a view to affording relief from double taxation and that it was expedient that those arrangements should have effect, they should do so. By section 788(1), a draft of any such Order was required to be laid before the House of Commons and to be the Judgment Approved by the court for handing down. Haworth v HMRC subject of “an Address … presented to Her Majesty by that House praying that the Order be made”. Provisions to similar effect had previously been found in the Income and Corporation Taxes Act 1970 and the Capital Gains Tax Act 1979. 11. The Treaty was concluded in 1981 and given effect by the 1981 Order. Article 13(4) of the Treaty provided: “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. 12. “Residence” was the subject of Article 4 of the Treaty. That was in these terms: “(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) (b) 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); 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 Judgment Approved by the court for handing down. Haworth v HMRC 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.” 13. Articles 8 and 27 of the Treaty are also noteworthy. Article 8 stated: “(1) (2) 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. 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 he may, accordance with this Convention, 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 Judgment Approved by the court for handing down. Haworth v HMRC 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.” 14. The Treaty replaced an earlier, 1947 treaty between the United Kingdom and Mauritius. That treaty had provided: “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 15. 16. But for the tax planning which was undertaken, CGT would have been payable on the gains that arose from the disposals of the Trusts’ TeleWork shares. Since they were deemed to have interests in the GH Trust and the IFL Trust, the gains accruing to those trusts would have been treated as accruing to Mr Haworth and Mr Lenagan respectively pursuant to section 86 (if the trustees were not resident or ordinarily resident in the United Kingdom in the material year) or section 77 of the TCGA (if they were so resident during the year). As Mr Lenagan was not considered to have an interest in the S&A Trust, its trustees would have been chargeable under section 2 of the TCGA. The tax planning adopted what is known as a “Round the World” scheme. It aimed to ensure that the Trusts were resident in Mauritius when the shares in TeleWork were disposed of but resident in the United Kingdom later in the same tax year. On that basis, section 86 of the TCGA could not apply, and it was hoped that liability under sections 2 and 77 would also be avoided as a result of Article 13(4) of the Treaty read with Article 4(3). The idea was that the Trusts should be deemed to be resident in Mauritius under Article 4(3) on the footing that, during the relevant period, their POEM was situated there. That would mean that, in accordance with Article 13(4), capital gains arising from the alienation of shares in TeleWork were taxable only in Mauritius, as “the Contracting State of which the alienator is a resident”. Since Mauritius did not in fact charge tax on such gains, they would escape tax. 17. The FTT explained the scheme as follows in paragraph 11 of its decision: “(2) As regards the S&A Trust, pursuant to s 277 [of the TCGA], article 13(4) [of the Treaty] would apply to Judgment Approved by the court for handing down. Haworth v HMRC 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 18. While it was not the only issue which the FTT had to consider, what matters for present purposes is what it decided as regards the POEM of the Trusts. In that connection, the FTT said in paragraph 20(2) of its decision that it had concluded as follows: “(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.” 19. After considering in detail, among other things, the decisions of Park J and the Court of Appeal in Wood v Holden (respectively [2005] EWHC 547 (Ch), [2005] STC 789 and [2006] EWCA Civ 26, [2006] 1 WLR 1393 and 78 TC 1), that of the Special Commissioners in Smallwood v Revenue and Customs Commissioners [2008] UKSPC 669, [2008] STC (SCD) 629 (“Smallwood SpC”) and Smallwood CA, the FTT Judgment Approved by the court for handing down. Haworth v HMRC observed in paragraph 360 that it considered that “the decision of the Commissioners in Smallwood and that of the High Court and Court of Appeal in Wood v Holden are not easily reconcilable (at any rate given the interpretation of Wood v Holden which the Court of Appeal took)” and that it did “not find it easy to understand the basis for the distinction which either the Commissioners or Hughes LJ made” in the Smallwood case. In paragraph 361, however, the FTT went on: “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. 20. Expanding on that in paragraph 362, the FTT said: “The evidence demonstrates that: (1) (2) (3) facilitated, There was an overall single plan for the sale of the shares in a tax efficient manner which was devised, decided upon, 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. 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. 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). Judgment Approved by the court for handing down. Haworth v HMRC (4) (5) 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. 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 21. 22. On appeal to the Upper Tribunal, the appellants argued that the FTT had made an error of law in its approach to POEM. More specifically, the appellants contended that “the proper test by which to identify the POEM for the purposes of Article 4(3) of the UK/Mauritian Treaty is that articulated in Wood v Holden … which identifies the place of effective management as being the place in which the binding decisions are made by the authorised decision-making body (in this case the trustees of the various trusts) unless that decision-making function has been ‘usurped’” and that “the fact that certain decisions involve adopting a plan or proposals devised and superintended by someone else is not sufficient to conclude that decision-making has been ‘usurped’ such as to displace the location of the effective management from that place in which actual decisions are taken”: see paragraph 58 of the Upper Tribunal’s decision. However, the Upper Tribunal concluded that “Smallwood was a case where there was no usurpation of the trustees and the majority of the Court of Appeal endorsed a test for POEM which involved looking at the circumstances in which the scheme was devised and implemented” and that “[i]t was not necessary to apply the tool of Wood v Holden”: see paragraph 118 of the Upper Tribunal’s decision. That being so, the Upper Tribunal was “satisfied … that the FTT made no error of law in the test it applied”: paragraph 134. The Upper Tribunal had said in the previous paragraph: “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.” Judgment Approved by the court for handing down. Haworth v HMRC The appeal 23. 24. Before us, as was the case before the Upper Tribunal, the only issue relates to the proper interpretation of POEM for the purposes of the Treaty. Mr James Rivett KC, who appeared for the appellants with Mr Ben Elliott, argued that POEM falls to be determined in the same way as “residence” for tax purposes, in other words by reference to the location of “central management and control” (or “CMC”), and, hence, that the approach to CMC adopted by the Court of Appeal in Wood v Holden is applicable. On that basis, he submitted that the POEM of the Trusts is to be identified as the place in which the relevant decisions were made by their trustees unless (a) that decision-making function had been “usurped” during the relevant period or in respect of the relevant decisions or (b) an outsider had “dictated” the relevant decisions to the trustees. As the FTT did not approach matters on that footing, Mr Rivett submitted, the appeal should be allowed. In contrast, Mr Christopher Stone KC, who appeared for HMRC with Dr Hitesh Dhorajiwala, contended that the FTT did not err in the test it followed in determining the Trusts’ POEM and, there being no challenge to the FTT’s findings of fact or its application of the test, the appeal should be dismissed. Smallwood CA, Mr Stone said, provides binding authority that POEM is to be decided by reference to the test adopted by the Special Commissioners in that case and that the approach taken in Wood v Holden is not applicable. Further, so Mr Stone argued, that would in any event be the correct way in which to interpret POEM in the context of the Treaty. “Central management and control” 25. 26. Given the extent to which CMC featured in the argument before us, I need to comment on it. The phrase “central management and control” derives from De Beers Consolidated Mines Ltd v Howe [1906] AC 455 (“De Beers”). That involved a South African company whose head office was formally in South Africa, whose general meetings were held in South Africa, whose profits stemmed from diamonds raised and sold for delivery in South Africa, some of whose directors and “life governors” lived in South Africa and some of whose board meetings were held in South Africa. On the other hand, as Lord Loreburn LC explained at 459: “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.” Judgment Approved by the court for handing down. Haworth v HMRC 27. It was argued on behalf of the company that, for tax purposes, a company “resides where it is registered, and nowhere else” (see 458). The House of Lords rejected that submission. Lord Loreburn LC summarised the law as follows at 458: “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”. 28. In a passage with which neither side took issue before us, in Development Securities v Revenue and Customs Commissioners [2020] EWCA Civ 1705, [2021] 4 WLR 4, at paragraph 14, I drew the following points from authorities relating to CMC: “i) ii) iii) iv) 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; The principle applies in relation to subsidiaries, including special purpose vehicles; It is the actual place of management, not that in which it ought to be managed, which fixes the residence of a company; 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 Judgment Approved by the court for handing down. Haworth v HMRC v) dictates decisions (as opposed to merely proposing, advising and influencing decisions); 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.” 29. Point (iv) reflected Wood v Holden. In that case, the question was whether Eulalia Holding BV (“Eulalia”), a company incorporated in the Netherlands which had been acquired to play a part in a scheme to avoid CGT, was resident in the United Kingdom. As had been planned, Eulalia bought shares in a company which was the ultimate owner of most of the shares in a card shop business for £23.7 million, plus, in the event of an onward sale within three years for more than £23.7 million, 95% of the excess, and re-sold the shares three months later to an outside purchaser for just below £30.8 million. The Special Commissioners concluded that CMC of Eulalia was exercised in the United Kingdom, but Park J allowed an appeal and his decision was affirmed by the Court of Appeal. 30. Chadwick LJ gave the main judgment in the Court of Appeal. He said in paragraph 27: “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.” Judgment Approved by the court for handing down. Haworth v HMRC 31. Another point which emerges from the case law is that a company’s CMC can potentially, if infrequently, be in more than one place. In Swedish Central Railway Co, Ltd v Thompson [1925] AC 495 (“Swedish Central Railway”), Viscount Cave LC said at 501: “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.” 32. 33. 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”. The House of Lords evidently had reservations about Swedish Central Railway in Unit Construction Co Ltd v Bullock [1960] AC 351. Viscount Simonds observed at 361, “It is not necessary for me (and I count it my good fortune) on this occasion at any rate to determine in what sense a company may be said to reside not only in that country in which, and in which alone, the central management of its business is exercised, but in another country also”. Lord Radcliffe said at 368, “I cannot avoid the opinion that the Swedish Central Railway Co. decision was an unfortunate one, having regard to the course of authority both before and after its date”. Even so, Viscount Simonds considered that it “must now be regarded as clear law that an artificial person may, like a natural person, have more than one residence”: see 361. For his part, Lord Radcliffe noted at 366 that “the facts of individual cases have not always so arranged themselves as to make it possible to identify any one country as the seat of central management and control at all” and that, “[t]hough such instances must be rare, the management and control may be divided or even, at any rate in theory, peripatetic”. At 369, he explained the Swedish Central Railway case as “a decision on that special class of case … where the facts themselves are genuinely such as not to admit of a finding that central management and control are exercised in or from any one country”. 34. The Special Commissioners (Dr Nuala Brice and Dr John Avery Jones) referred in Smallwood SpC to the possibility of a company having more than one place of CMC. They said in paragraph 111 of their decision: Judgment Approved by the court for handing down. Haworth v HMRC “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 35. Guidance as how treaties are to be interpreted is to be found in the Vienna Convention on the Law of Treaties concluded in May 1969 (“the Vienna Convention”). So far as relevant, that provides as follows: “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) (b) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty; 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: Judgment Approved by the court for handing down. Haworth v HMRC (a) (b) (c) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; 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) (b) Leaves the meaning ambiguous or obscure; or Leads to a result which is manifestly absurd or unreasonable.” 36. Having quoted these provisions, Lord Reed noted in Revenue and Customs Commissioners v Anson [2015] UKSC, [2015] STC 1777, at paragraph 56: “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.” 37. In the same case, Lord Reed: i) commented in paragraph 58 that “[t]he contemporary background of a treaty, including the legal position preceding its conclusion, can legitimately be taken Judgment Approved by the court for handing down. Haworth v HMRC 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”. 38. With regard to that latter point, Lord Diplock had said this in Fothergill v Monarch [1981] AC 251, at 281-282: “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. 39. While subsequent state practice can be an aid to the interpretation of a treaty, in accordance with Article 31(3)(b) of the Vienna Convention, “since there is more than one party to a treaty, what is required is evidence of practice on the part of both parties to that treaty” and “the unilateral practice of one party cannot alter the meaning of a treaty”: see Irish Bank Resolution Corporation Ltd v Revenue and Customs Commissioners [2020] EWCA Civ 1128, [2020] STC 1946, at paragraph 59, per Singh LJ, and also GE Financial Investments v Revenue and Customs Commissioners [2024] EWCA Civ 797, [2024] STC 1310 (“GE Financial Investments”), at paragraph 38, per Falk LJ. 40. Where, as in the present case, a treaty is based on the OECD Model Tax Convention (“the Model Convention”), the OECD Commentaries on that Convention can also be of assistance: see Fowler v Revenue and Customs Commissioners [2020] UKSC 22, [2020] 1 WLR 2227 (“Fowler”), at paragraph 16, per Lord Briggs. In paragraph 18, Lord Briggs explained: “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.” Judgment Approved by the court for handing down. Haworth v HMRC 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. 41. In Fowler, Lord Briggs also endorsed, in paragraph 19, comments which Patten LJ had made in Smallwood CA, in paragraphs 26-29, about the correct approach to the interpretation of treaties. The passage in question included this: “[28] [29] 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. 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.” Judgment Approved by the court for handing down. Haworth v HMRC The OECD’s Model Convention and Commentaries 42. 43. The Treaty is based on the 1977 version of the Model Convention. Article 4(3) of that is replicated in Article 4(3) of the Treaty. The OECD Commentary accompanying the 1977 version of the Model Convention included these comments on Article 4(3): “21. 22. 23. 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. 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. 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.” 44. In a policy paper published in 1990, “Statement of Practice 1 (1990)”, HMRC said this in paragraph 22 about Article 4(3) of the Model Convention: “The commentary in Article 4 paragraph 3 of the OECD Model records the UK view that, in agreements (such as those with Judgment Approved by the court for handing down. Haworth v HMRC 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.” 45. When the next version of the Model Convention was published in 1992, Article 4(3) was unchanged except that “the State in which” was substituted for “the Contracting State in which”. However, the Commentary now omitted what had been the last sentence of paragraph 23 so that the paragraph read: “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’.” 46. In the 2000 version of the Model Convention, Article 4(3) was still in the same terms, save that “only” was inserted between “a resident” and “of the State in which its place of effective management is situated”. The Commentary was, however, revised to include this at paragraph 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 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 Judgment Approved by the court for handing down. Haworth v HMRC can have only one place of effective management at any one time.” 47. No changes were made to Article 4(3) in the 2008 version of the Model Convention, but part of the third sentence of paragraph 24 of the Commentary was omitted so that paragraph 24 now read: “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.” 48. Article 4(3) of the Model Convention has since been revised much more substantially. It now reads: “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 49. What is at issue is the meaning of “place of effective management” as that phrase is used in the Model Convention and, hence, the Treaty. While the United Kingdom was a party to the Treaty and a member of the OECD, it was not of course the only party to the Treaty nor member of the OECD. That being so, construction of “place of effective management” is not to be approached in the same way as if the words appeared in domestic legislation. No international tribunal exists to rule on the interpretation of the term, but it nevertheless has an autonomous meaning and falls to be construed in a manner which is “international, not exclusively English” (see paragraphs 37(ii) and 38 above). 50. Mr Rivett relied on the 1977 Commentary on the Model Convention as an indication that during the period when the Treaty was concluded POEM was equated with place of CMC. As Mr Rivett pointed out, the comments on Article 4(3) explained in paragraph 23: Judgment Approved by the court for handing down. Haworth v HMRC “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.” 51. 52. 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. I do not think, however, that the passage from the Commentary is of any real help. The sentence in question forms part of a paragraph in which there is reference to “preference criteria” adopted in other contexts. Even if the sentence casts light on the United Kingdom’s understanding, that is not determinative. Other States cannot be taken to have subscribed to the United Kingdom’s perception. Another, and important, point is that the concept of CMC is not well-suited to perform the function of POEM. Both the Model Convention and the Treaty proceed on the basis that there will be only one POEM at a point in time. Thus Article 4(3) of the Treaty provides for a person to be deemed to be a resident of “the” Contracting State in which its POEM is situated. Similarly, Article 13(4) states that capital gains are to be taxable only in “the” Contracting State of which the alienator is a resident, Article 8(1) stipulates that certain profits are to be taxable only in “the” Contracting State in which the POEM of the enterprise is situated, and Article 8(2) also speaks of “the” POEM. By 2000, the Commentary explained that, while “[a]n entity may have more than one place of management, … it can have only one place of effective management at any one time”. Those comments were not in existence when the Treaty was entered into, but they reflect its terms. POEM was clearly intended to serve as a tie-breaker. 53. CMC, in contrast, does not necessarily produce a single answer. Although an entity normally has only one place of CMC, the authorities mentioned in paragraphs 31 to 34 above show that that will not always be the case. That suggests that CMC is not well-suited to fulfil the role of POEM. 54. The Special Commissioners referred to this in Smallwood SpC. They said: “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.’ … Judgment Approved by the court for handing down. Haworth v HMRC 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.” 55. Mr Rivett argued that the approach of the Special Commissioners in Smallwood SpC was problematic because they had had resort to the 2000 Commentary on the Model Convention, post-dating the Treaty. However, the Special Commissioners recognised that “[t]he relevance of commentaries adopted later than the treaty is more problematic because the parties cannot have intended the new commentary to apply at the time of making the treaty”: see paragraph 99 of their decision. On the basis that ignoring them would mean “shutting one’s eyes to advances in international tax thinking”, the Special Commissioners took the view that “[t]he safer option is to read the later commentary and then decide in the light of its content what weight should be given to it”: see paragraph 99. 56. In any event, the passage from the Special Commissioners’ decision which I have quoted in paragraph 54 above did not depend on what was said in the 2000 Commentary. POEM’s role as a tie-breaker is evident from the terms of the Treaty and the 1977 Model Convention themselves. Not only, therefore, is there no good reason to take other States to have accepted that CMC, as developed in our domestic case law, should govern the interpretation of POEM, but CMC is not designed to serve the same purpose as POEM and may not yield the single answer which POEM needs to supply. 57. Mr Rivett suggested that, in a case in which his interpretation of POEM yielded more than one POEM, article 27 of the Treaty (providing for “Mutual agreement procedure”) would supply the solution. However, there is no indication in the Treaty that article 27 was envisaged to apply in such circumstances. The position is instead that it can be seen from the Treaty that there was meant to be just one POEM. 58. Mr Rivett pointed out that, in Wood v Holden, Chadwick LJ did not discern a significant difference between CMC and POEM. He said in paragraph 6 of his judgment: “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.” Judgment Approved by the court for handing down. Haworth v HMRC 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.” 59. 60. 61. 62. Not only, however, were these remarks obiter, but they were to an extent tied to “the circumstances which the commissioners had to consider” and “the circumstances of this case” and, more importantly, Chadwick LJ did not explain his reasoning. I do not think, therefore, that the comments are of assistance. Returning to the language of Article 4(3), that requires the focus to be on the place of “effective management”. Addressing the location of a trust’s POEM in Wensleydale’s Settlement Trustees v Inland Revenue Commissioners [1996] STC (SCD) 241, a Special Commissioner (Mr D A Shirley) stressed the word “effective”. He said at 250-251: “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.” In Smallwood SpC, the Special Commissioners adopted the reference to “realistic, positive management”: see paragraph 114. It also strikes me as apposite. Approaching matters on that basis, it seems to me that POEM can potentially be in a place other than that in which, applying the Wood v Holden approach, CMC would be located. Wood v Holden shows that, where a company is incorporated in a country and its constitutional organs make their decisions there, its CMC will also be there unless “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)”. I do not think the position will necessarily be the same as regards POEM. Identifying the place of “effective” (or “realistic, positive”) management allows matters to be looked at somewhat more broadly. 63. More specifically, it can, as it appears to me, be legitimate to have regard to the circumstances in which trustees from a particular jurisdiction were appointed. The mere fact that, in making decisions during the period they were in office, the trustees made proper decisions in accordance with their duties without the decisions being dictated by outsiders or their functions being “usurped” will not automatically mean Judgment Approved by the court for handing down. Haworth v HMRC that the POEM was in the relevant jurisdiction. If the trustees were appointed because it was appreciated that fulfilment of their responsibilities would cause them to take the decisions, the POEM of the trust might not be in the jurisdiction from which the trustees come. 64. Mr Rivett expressed concern as to the position of professional advisers were POEM to be understood in that way. However, there can be no question of POEM being situated in a country just because advice is given from it. It is the decision-makers who matter. The fact that trustees from, say, Mauritius take advice from professionals in, say, London cannot of itself result in the POEM of the trust being in the United Kingdom. 65. 66. The present case, like the Smallwood case, is different. In each, the role of the trustees in Mauritius was effectively pre-determined. In this case, as the FTT explained, the 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. That understanding of POEM is consistent with, and supported by, the Court of Appeal’s decision in Smallwood CA. That case concerned a trust established by Mr Smallwood in respect of which he had the power of appointing new trustees. In December 2000, the Jersey trustee of the trust retired and Mr Smallwood, in exercise of that power, appointed a Mauritian company (“PMIL”) as the new trustee. In the following month, the Mauritian trustee sold shares which the trust held and so realised large gains. At the beginning of March 2001, PMIL resigned as trustee in favour of Mr Smallwood and his wife. HMRC sought to charge the trust with CGT, but that was resisted on the basis that the Treaty applied and the POEM was in Mauritius during the relevant period. 67. The Special Commissioners decided otherwise. They concluded in paragraph 140: “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 Judgment Approved by the court for handing down. Haworth v HMRC 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.” 68. In the Court of Appeal, one of the issues was whether a “snapshot” approach should have been adopted. It was argued on behalf of the trustees that Article 13(4) of the Treaty required one to look no further than where the trustees were tax resident at the date of disposal. Patten LJ, with whom the other members of the Court agreed in this respect, rejected that, and also rejected a contention by HMRC that there was “no need to apply art 4(3) because the period of residence which gives rise to the UK tax charge in this case under s 2 was consecutive upon the earlier period of Mauritian tax residence up to and including the date of the disposal”: see paragraph 46. Patten LJ considered that Article 4(3) “applies in every case in which there is a ‘liability to taxation’ in both contracting states”, the Treaty being “concerned only with the possibility of a double tax charge on the same gain and not with the period of residence which gives rise to it”: see paragraphs 43 and 46. That being the case, the “tie-breaker” under Article 4(3) was to be applied. 69. Patten LJ noted in paragraph 47 that “[b]oth sides approached this issue by reference to what the Special Commissioners described as the Mauritius period: i.e. the period up to and including the sale of the shares during which PMIL remained the trustee”. Patten LJ explained: “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.” Judgment Approved by the court for handing down. Haworth v HMRC 70. The trustees accepted that what had to be identified was “the place where the real top- level management of the trustee qua trustee occurred rather than the day to day administration of the trust”, but they argued that “the top-level management of a company is usually carried out by its board of directors … unless it can be shown that the control of the company’s affairs was effectively usurped and exercised by some third party and that the directors were content merely to rubber-stamp the decisions which were taken”: see paragraph 49. Patten LJ agreed that “the Special Commissioners’ conclusions are not ones which were … open to them on the evidence or on the findings of fact which they made”: paragraph 63. That was essentially on the basis that, “[g]iven that the directors of PMIL remained in place and exercised their powers as directors to effect the sale, the approach to this issue suggested by Chadwick LJ in Wood v Holden must be the right test”: paragraph 61. 71. However, Patten LJ was in the minority. Hughes LJ, with whom Ward LJ agreed on this issue, considered that the Special Commissioners had been entitled to find that the POEM was in the United Kingdom. He said this: “[66] On the issue of POEM, with suitable hesitation, I respectfully differ from Patten LJ. [67] [68] 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. 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 Judgment Approved by the court for handing down. Haworth v HMRC [70] 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. 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.” 72. 73. I do not, with respect, find this (relatively compressed) judgment easy to interpret in every respect. Hughes LJ did not think it possible to say that the Special Commissioners had not been entitled to find that the POEM of the trust was in the United Kingdom “in the fiscal year in question”. However, the question which the Special Commissioners had addressed and answered was whether the POEM had been in the United Kingdom during “the Mauritius period: i.e. the period up to and including the sale of the shares during which PMIL remained the trustee”. Nor is the relevance of section 69 of the TCGA obvious to me. There was no doubt that PMIL was the only trustee throughout the “Mauritius period”. On the other hand, it is clear that Hughes LJ considered that the POEM should not be determined by reference only to the circumstances at the “moment of disposal” or on Wood v Holden principles. He evidently took a broader view and considered that the POEM could be found to be in the United Kingdom on the basis that there was “a scheme of management of this trust which went above and beyond the day to day Judgment Approved by the court for handing down. Haworth v HMRC management exercised by the trustees for the time being, and the control of it was located in the United Kingdom”. He also appears to have endorsed paragraphs 140 and 145 of the Special Commissioners’ decision (quoted in paragraph 66 above) in which, relying on the “facts surrounding the appointment of PMIL”, the Special Commissioners concluded that in the period when PMIL was in office “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” was the United Kingdom. 74. In all the circumstances, I have not been persuaded that the FTT approached matters on an erroneous basis. In particular, it seems to me that the FTT was right not to determine the POEM of the Trusts by reference to the principles seen in Wood v Holden. Conclusion 75. I would dismiss the appeal. Lord Justice Arnold: 76. I agree. Sir Andrew McFarlane, President of the Family Division: 77. I also agree. 28