This is an appeal against a decision of the First-tier Tribunal which had found the place of effective management (POEM) of Mauritius trusts to be in the UK. The first and second appellants are the settlors of separate family trusts which engaged in a tax planning arrangement known as the “round the world” scheme. They hoped that the trustees of the family trusts would avoid capital gains tax on disposals of shares on the flotation of a company called TeleWork Group Plc. It is now common ground that the scheme was effective to achieve the capital gains tax savings if, amongst other things, the family trusts became resident in Mauritius by the time of disposal. The scheme would only be effective if the place of effective management (the “POEM”) of the trusts was in Mauritius. Judgement of the Court The Court upheld the decision of the First-tier Tribunal and decided in favour of the tax authorities. Excerpts: “We have described above the test for POEM applied by the FTT. The FTT stated that it was applying the general approach of the SpC 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 SpC 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. We are satisfied therefore that the FTT made no error of law in the test it applied. The FTT at [361] found that the POEM of the trusts was the UK in the relevant period. It based that conclusion on its findings of fact summarised at [362]. Those findings mirror the findings which Hughes LJ held entitled the SpC in Smallwood to find that the POEM of the trust in that case was the UK. Mr Rivett accepted that if the FTT did apply the right test then the appeal must be dismissed. The application of the test is acutely fact sensitive and there was no Edwards v Bairstow challenge on this appeal. Conclusion For the reasons given above we are satisfied that the FTT made no error of law in the test it applied to identify the POEM of the trusts. The appeals must therefore be dismissed.” ...

In 2001 “POEM B.V.” was incorporated in the Netherlands under Dutch law by its shareholder X, and has since then been registered in the Dutch trade register. In 2010 its administrative seat was moved to Malta where it was also registered as an ‘Oversea Company’. X was from the Netherlands but moved to Switzerland in 2010. In “POEM B.V.”‘s Maltese tax return for the year 2013, the entire income was registered as ‘Untaxed Account’ and no tax was paid in Malta. “POEM B.V.” distributed dividend to X in FY 2011-2014. Following an audit the Dutch tax authorities issued an assessment where corporate income tax and withholding tax over the dividend had been calculated. The assessment was based on Article 4 (4) of the Dutch-Maltese DTA under which “POEM B.V.” was deemed to be a resident of the Netherlands. Not satisfied with the assessment “POEM B.V.” filed an appeal arguing that it was a resident of Malta (or alternatively Switzerland) and that the Netherlands therefore has no taxing right over the profits or the dividends. Judgement of the Court The Court decided in favour of the tax authorities and upheld the assessment of taxable income in the Netherlands. Excerpts: “5.38. In view of the aforementioned facts and circumstances, taken together and weighed up, the Court sees no evidence to suggest that, in the years in question, core decisions were prepared in substance in Malta and that substantive discussions took place there, let alone to rule that the core decisions were taken there. The interested party has thus failed to rebut the presumption of proof. This leads to the conclusion that the actual management of interested party was exercised from the Netherlands. Interested party was therefore resident in the Netherlands for the purposes of the Netherlands-Malta Convention in the years in question. For that case, it is not in dispute between the parties – rightly so – that the treaty does not impede the Dutch right of taxation and that the tax assessments in question were rightly imposed to that extent.” “5.40. Pursuant to Article 4(1) of the Netherlands-Switzerland Convention 2010, the interested party was a resident of the Netherlands if, under the laws of the Netherlands, she was subject to tax there by reason of her residence, stay, place of management or any other similar circumstance. The second sentence of that provision makes it clear that a person who is subject to tax only in respect of income from sources in the Netherlands is not deemed to be a resident of the Netherlands. For the application of this residence provision, the Court has previously held that in order to be a resident of one of the countries, a person must be fully subject to the tax in that country (‘full tax liability’) (see Court of Appeal of The Hague 24 June 2020, ECLI:NL:GHDHA:2020:1044, r.o. 5.63-5.65). 5.41. By virtue of the residence fiction in Article 2(4) of the Vpb Act, the interested party was a resident of the Netherlands within the meaning of Article 4(1) of the Netherlands-Switzerland Treaty 2010. Having held above in 5.38 that the interested party was a resident of the Netherlands for the purposes of the Netherlands-Malta Convention, the full subjection of the interested party in the Netherlands under Article 4(1) of the Netherlands-Switzerland 2010 Convention is not limited by the application of that Convention.” “5.47. In the opinion of the Court of Appeal, in the face of the substantiated challenge by the Inspector, the interested party, which argued that it is actually managed in a country other than the country in which the formal management sits, has the burden of demonstrating facts and circumstances that justify the conclusion that its actual management is in Switzerland. The mere circumstance that its sole shareholder and co-director resides in Switzerland is insufficient for that purpose – also in view of his varying places of residence (cf. HR 2 July 2021, ECLI:NL:HR:2021:1044, BNB 2021/156). Since the interested party did not put forward anything else to substantiate its claim, the conclusion is that the interested party is a resident of the Netherlands for the purposes of the Netherlands-Switzerland Convention 2010. For that case, it is not in dispute between the parties – rightly so – that the treaty does not impede the Dutch right of taxation and that the tax assessments in question were also rightly imposed to that extent.” Click here for English translation Click here for other translation ...