Geoffrey Richard Haworth & Ors v The Commissioners for HMRC

For the purposes of the treaty tie-breaker based on a trust’s place of effective management, the inquiry concerns the trust’s trustees as a single and continuing body. It is a fact-sensitive inquiry into where the trust’s real top-level, realistic and positive management was exercised.

The inquiry is not confined to formal decisions of the trustee in office at the time of disposal. In a temporary trustee arrangement forming part of a scheme, the tribunal may consider where the scheme was devised, orchestrated and controlled, including its entry into and exit from the trust. The corporate-residence analysis in Wood v Holden does not supply a mandatory usurpation test for this inquiry.

The appellants were settlors of three family trusts which participated in a “round the world” tax-planning arrangement. Jersey trustees were replaced temporarily by Mauritian trustees, who disposed of shares during the flotation of TeleWork Group Plc, before English trustees were appointed.

The First-tier Tribunal held that the trusts’ place of effective management was in the United Kingdom. It therefore rejected treaty relief under Article 13(4) of the UK/Mauritius Treaty and dismissed the appeals against HMRC’s closure notices.

The appellants contended that the First-tier Tribunal should have applied the corporate central-management-and-control approach in Wood v Holden, so that Mauritius was the place of effective management unless the Mauritian trustees’ decision-making functions had been usurped. The central issue was whether that was the correct legal test under Article 4(3) of the Treaty.

1. Appeals dismissed. The First-tier Tribunal made no error of law in holding that the trusts’ place of effective management was in the United Kingdom.

2. Article 4(3) required identification of the place of effective management of the trust, namely of its trustees as a single and continuing body, rather than of the particular corporate trustee at the instant of disposal. The inquiry was not a return to the rejected “snapshot” approach.

3. The applicable test was where the real top-level, or realistic and positive, management of the trustee qua trustee was found. It required examination of all relevant circumstances. The Tribunal was entitled to follow the majority reasoning in HM Revenue and Customs v Smallwood [2010] EWCA Civ 778, rather than treat the corporate central-management-and-control analysis in Wood v Holden as a mandatory test of usurpation.

4. On the First-tier Tribunal’s unchallenged findings, the overall scheme was devised, facilitated, orchestrated and superintended in the United Kingdom by the settlors and their United Kingdom advisers. The Mauritian trustees were installed only temporarily to implement it, and their individual decisions were properly treated as lower-level implementation and administration. Those findings mirrored the facts which entitled the majority in Smallwood to find United Kingdom effective management.

5. The appellants accepted that, if the correct test had been applied, their appeals failed. The application of that test was acutely fact-sensitive and no Edwards v Bairstow challenge was advanced.

In the annex, the Tribunal also explained that reliance on an unpublished First-tier Tribunal decision is discretionary. Fairness may require refusal where publication asymmetry could give HMRC an unfair advantage, although the subsequently published decision in Wesley v HM Revenue and Customs added nothing to the Tribunal’s analysis.

• Upper Tribunal (Tax and Chancery Chamber): Appeals dismissed. The Tribunal upheld the First-tier Tribunal’s approach to Article 4(3) of the UK/Mauritius Treaty.
• First-tier Tribunal (Tax Chamber): Decision released on 2 February 2022. It held that the trusts’ place of effective management was in the United Kingdom and dismissed the appeals against HMRC’s closure notices.