Upper Tribunal Tax and Chancery Chamber

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

Fecha: 01-Dic-2023

Wood v Holden

Wood v Holden

70.

In Wood v Holden, the Court of Appeal was concerned in the first instance to identify the place where the central management and control of a company was located. There was a complex corporate and trust structure. The issue arose in the context of capital gains tax on an intra-group disposal of shares to Eulalia Holdings BV (“Eulalia”), a company incorporated in the Netherlands. The issue was whether or not Eulalia was resident in the UK. Chadwick LJ described the issues as follows:

It is common ground that the question whether or not Eulalia was resident in the United Kingdom on 23 July 1996 for the purposes of TCGA 1992 turns, in the first instance, on “where its real business [was] carried on . . . where the central management and control actually abides”. That was the test adopted by the House of Lords in De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes) [1906] AC 455 (per Lord Loreburn, Lord Chancellor, at 458). But if, on the application of that test, Eulalia were found to be resident in the United Kingdom, then … 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”.

71.

The approach to determine where central management and control abided was described by Chadwick LJ at [27]:

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.

72.

The Court of Appeal upheld the finding of Park J that the only conclusion open on the facts was that Eulalia was not resident in the UK. It did not therefore need to address the question posed by the double taxation convention of the location of Eulalia’s POEM. Chadwick LJ went on to say at [44]:

44.

For those reasons I would uphold the judge's decision to reverse the special 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.

73.

Chadwick LJ had previously stated by way of introduction at [6]:

… 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 special commissioners had to consider, they could lead to different answers.

74.

Mr Rivett described Wood v Holden as a “dual ratio” case, maintaining that the reasoning on both central management and control and POEM were part of the ratio of the decision and that we are bound by that reasoning. We do not accept that is the case. The decision on central management and control formed part of the ratio for the decision. What was said about POEM was not a necessary part of the reasoning by reference to which the Court of Appeal dismissed the appeal against the judgment of Park J. Even then, what was said about the relationship between central management and control and POEM was couched in terms which indicated the view of the Court of Appeal on the facts of that case, but which did not purport to decide the issue.

75.

Mr Rivett also relied on the findings of Park J in the High Court on POEM. Park J held at [72] that the central management and control of Eulalia was in the Netherlands. He went on to say at [81] that if he was wrong on that, the POEM of Eulalia was in Amsterdam. Again, that latter finding did not form part of his reasoning for allowing the taxpayer’s appeal against the decision of the Special Commissioners. In any event, it is not clear to us that Park J was applying the same test for POEM as for central management and control, although on the facts he found that both gave the result that Eulalia was resident in the Netherlands. It is notable that Park J records at [75] the submission of counsel for the Inland Revenue that if central management and control was in the UK then so too was POEM. It appears that Park J rejects that submission at [76].

76.

Clearly, in the absence of binding authority, what was said by the Court of Appeal and by Park J in Wood v Holden would be highly persuasive as to the test for POEM.

77.

In the context of corporate residence and central management and control, we were referred to a recent summary of the test by Newey LJ in Development Securities Limited v HM Revenue and Customs [2020] EWCA Civ 1705. Having reviewed the authorities he stated at [14]:

14.

For present purposes, I would draw the following points from the authorities:

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);

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.

78.

Neither party takes any issue with that summary of the test for corporate residence and central management and control. The FTT in Development Securities, coincidentally the same FTT Judge as in the present appeal, found that a subsidiary company was UK resident. It found that the UK parent was exercising central management and control in that the directors of the subsidiary company acted on instruction from the parent company. The facts of the case were very different from the present facts. However, we note in passing that the Upper Tribunal, which overturned the FTT and was itself overturned by the Court of Appeal, rejected at [66] and [67] a submission of HMRC that the test for POEM elucidated the test of central management and control.