UT (Tax & Chancery) UT/000086, 87, 89/2022 - [2024] UKUT 00058 (TCC)

It is evident from Hughes LJ’s judgement [in Smallwood], therefore, that for the purposes of applying article 13(4) of the Mauritius treaty in these circumstances, the tribunal is not confined to finding that POEM of the family trusts (ie the trustees of the family trusts as a continuing body) was in a place other than that where the Mauritius trustees made their formal decisions, only if the evidence supports a finding that their discretion to take the individual actions required to implement the scheme was “usurped” in the sense set out in Wood v Holden. Moreover, whilst Hughes LJ held, in effect, that the Commissioners’ decision is within the scope of what a judge acting judicially and properly instructed may decide, Hughes LJ did appear to endorse the overall approach taken by the Commissioners when he said that they had addressed the right question and cited the passages from their judgement containing their key conclusions.

It is apparent from my comments on these two cases that I consider 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). In Smallwood, the Commissioners and Hughes LJ gave different reasons as to why it is not appropriate to seek to assess the POEM of a trust, as the place where the “top-level management” is carried out, by adopting a similar approach to that taken in Wood v Holden to the very similarly formulated test for assessing where CMC of a company is located, as the place where “the real business” is carried on (being where CMC “actually abides”). I do not find it easy to understand the basis for the distinction which either the Commissioners or Hughes LJ made.

However, my own views on that score are not relevant. 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, on the evidence set out in Part B, the POEM of the trustees of the family trusts as a deemed trustee body was in the UK during the relevant period.

The evidence demonstrates that:

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 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).

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.