Beyond Central Management and Control: Court of Appeal Clarifies “Place of Effective Management” as an Autonomous Tie-Breaker for Dual-Resident Trusts

1. Introduction

In Haworth & Ors v Commissioners for His Majesty's Revenue and Customs ([2025] EWCA Civ 822) the Court of Appeal (Newey, Arnold LJJ and Sir Andrew McFarlane P) confronts a familiar but unresolved question in international tax law: what exactly is the “place of effective management” (“POEM”) in an OECD-modelled double tax treaty, and how does it differ from the domestic company-law concept of “central management and control” (“CMC”)? The answer has sweeping consequences for so-called “Round-the-World” trust migrations designed to exploit the UK–Mauritius treaty.

The appellants—Mr Geoffrey Haworth, Mr Ian Lenagan, and SG Kleinwort Hambros Trust Company (UK) Ltd (“SGKH”)—were exposed to UK capital gains tax (“CGT”) on gains realised by three family trusts that temporarily appointed Mauritian trustees before crystallising large gains and returning to UK trusteeship within the same fiscal year. They argued that, during the disposal window, the trusts’ POEM lay in Mauritius, invoking the treaty’s Article 13(4) exclusion. Both the First-tier Tribunal (“FTT”) and the Upper Tribunal (“UT”) disagreed, holding that the POEM remained in the United Kingdom. The Court of Appeal has now affirmed those conclusions while laying down a refined definition of POEM, independent of the domestic CMC test developed in Wood v Holden.

2. Summary of the Judgment

The Court dismissed the appeal and held:

Autonomous meaning of POEM. The treaty phrase “place of effective management” is an international concept intended as a single-state tie-breaker in dual-residence situations. It is not synonymous with, nor necessarily resolved by, the domestic CMC test.
Focus on “realistic, positive management”. Building on Smallwood, the court reaffirmed that POEM is where “realistic, positive (i.e. effective) management” occurs, considering the overall control structure rather than only the formal acts of the trustee board.
Broader factual evaluation. In treaty cases, it is legitimate to examine the circumstances leading to the appointment of foreign trustees and to assess whether their decision-making was pre-ordained by UK-resident actors as part of a tax-driven plan.
Result. Even though Mauritian trustees took the formal disposal decisions, effective management never left the UK because their appointment, tenure, and actions were all scripted and supervised from the UK. Accordingly, Article 13(4) did not protect the gains from UK CGT.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

De Beers Consolidated Mines v Howe (1906)
Origin of the CMC test; emphasised residence where “central management and control” abides. Provided historical context but the Court noted CMC’s potential for multiple residences, contrasting with POEM’s treaty role.
Swedish Central Railway (1925) & Unit Construction (1960)
Demonstrated that a company may have more than one CMC, underscoring why POEM—requiring a single state—cannot simply mirror CMC.
Wood v Holden (2006)
Key authority on CMC of companies: decisions by constitutional organs determine residence unless those functions are “usurped”. Appellants relied on this, but the Court held that POEM is not constrained by Wood’s strict “usurpation” test.
Smallwood v HMRC (2010)
Most influential. Majority (Hughes & Ward LJJ) treated POEM as “realistic, positive management” and looked at the scheme’s orchestration from the UK, not just trustee formalities. The present Court endorsed this approach and clarified any ambiguity left by the split court in Smallwood.
Wensleydale’s Settlement Trustees (1996)
Special Commissioner’s phrase “realistic, positive management” was adopted to emphasise substance over form.
OECD Commentaries (1977–2008)
Provided interpretative backdrop, especially the move to define POEM as where “key management and commercial decisions” are made. Post-1977 commentaries were used “like academic writings—persuasive but not binding”.

3.2 Court’s Legal Reasoning

Treaty Interpretation Principles.
Applying Vienna Convention Art. 31, terms must be given their ordinary meaning in context and “in an international, not exclusively English” manner (Anson, Fowler). The Court rejected a purely domestic overlay.
Functional Purpose of POEM.
Because POEM acts as a tie-breaker, it must yield only one location; CMC can yield several. Therefore, equating the two would frustrate treaty design.
“Realistic, Positive Management.”
The adjective “effective” invites inquiry into who really calls the strategic shots. If trustees are appointed solely to rubber-stamp a pre-arranged plan devised elsewhere, POEM follows the plan’s architects, not the executors.
Application to the Facts.
a. UK settlors and advisers devised a single tax-efficient plan.
b. Mauritian trustees were temporary, instructed, and expected to implement that plan.
c. Their decisions, though formally theirs, were pre-ordained; effective management therefore remained in the UK.
Dismissal of Wood-Style “Usurpation” Requirement.
Wood concerns CMC and company constitutional organs. The treaty term permits a wider lens; actual “usurpation” need not be shown if pre-planning locates top-level control elsewhere.

3.3 Potential Impact

Tax Planning Schemes. Round-the-World trust migrations will be far harder to defend. Merely inserting offshore trustees for a limited window will not shift POEM if UK control persists.
Professional Advisers. The Court alleviates advisers’ fears by clarifying that giving cross-border advice does not, by itself, relocate POEM. Substance, not advice, is key.
Trust Litigation. Tribunals must evaluate overall management reality, including pre-appointment intentions and orchestration, rather than snapshot board minutes.
Corporate Dual Residence. Though decided on trusts, the reasoning is likely to influence POEM clauses for companies in older treaties still using the 1977 wording.
Treaty Interpretation. Re-asserts that UK domestic labels do not control OECD treaty concepts; paves way for more autonomous treaty analyses in other areas (e.g., PE, beneficial ownership).

4. Complex Concepts Simplified

Central Management and Control (CMC): A domestic UK test for corporate residence: where the board (or those who usurp it) actually conducts the company’s top-level business.
Place of Effective Management (POEM): An OECD treaty term used to choose one residence when both states claim residence. Looks to where strategic, realistic, positive management is exercised overall.
Round-the-World Scheme: A tax strategy moving a trust or company through multiple jurisdictions within a tax year to secure treaty benefits and return “home” before year end.
Tie-Breaker Rule: Treaty provision (here Article 4(3)) that decides which one of two states gets to treat an entity as resident where both could otherwise claim residence.
Usurpation (in CMC cases): Situation where outsiders, not the formal board, make the real decisions, displacing the normal CMC location. Not required for POEM analysis post-Haworth.

5. Conclusion

The Court of Appeal’s decision in Haworth decisively separates the international treaty concept of “place of effective management” from the domestic “central management and control” doctrine. For dual-resident trusts (and arguably companies), POEM is where “realistic, positive management” occurs, assessed holistically and substantively. Temporary offshore trusteeship, especially as part of a pre-packaged tax plan orchestrated from the UK, will not dislodge UK residence under Article 4(3).

Practitioners must now scrutinise not just board minutes but the origins, intent, and supervision of decision-making structures when advising on treaty protection. The judgment therefore reshapes planning around older OECD-based treaties and fortifies HMRC’s hand against schematic migrations, marking a significant development in UK tax treaty jurisprudence.