The recent Court of Appeal judgment in Haworth & Ors v The Commissioners for His Majesty’s Revenue and Customs [2025] EWCA Civ 822 has confirmed that an appropriately broad test should be used for the purpose of establishing the place of effective management (“POEM”) of a trust as required by many double tax treaties, confirming that the central management and control test (“CMC”) set out in Wood v Holden (Inspector of Taxes) [2006] EWCA Civ 26, [2006] 1 W.L.R. 1393 does not apply to trusts. While the decision relates to the interpretation of the Double Taxation Treaty (“DTT”) as between the United Kingdom and Mauritius, it may be used by HMRC going forward to determine the POEM of trusts for the purposes of other DTTs as well as for companies and partnerships seeking to rely on DTTs based on the OECD Model Tax Convention (the “Model Convention”). In light of such far-reaching implications, this article details the Court of Appeal’s judgment.
Case Overview
In Haworth the appellants were settlors of three family trusts, appealing the Upper Tribunal’s decision that they were liable to UK capital gains tax (“CGT”) on the disposal of company shares held by the trusts (under s2 TCGA 1992). On the basis that Mauritius did not charge tax on such gains, the appellants’ tax advisers considered that CGT could be avoided through the UK-Mauritius DTT (Art 13) if UK resident trustees (determined under s69 TCGA 1992) were appointed (avoiding any s86 TCGA 1992 settlor attributed gains) in the same year as the Mauritius resident trustees but after the share disposal and a CMC Wood v Holden approach was followed in determining where Article 4(3) POEM attributable primary taxing rights fell.
The appellants argued that the POEM of the trusts was the place in which the relevant decisions were made by their trustees (unless there was any element of “rubber stamping” involved in the decision-making process).
On 1 July 2025, the Court of Appeal rejected this submission and dismissed the appeal. There was some useful and interesting discussion around the interpretation of DTTs.
DTT Interpretation
Newey LJ confirmed that DTTs are not unilateral agreements such that the principles of interpretation followed by one contracting state could be presumed to automatically apply. Instead the role of the court is to establish, by objective and rational means, the common intention which can be ascribed to the two contracting states.
As the UK-Mauritius DTT was based on the OECD Model Convention there was a review of the applicable commentary around determining the meaning of POEM under Article 4(3) including commentary which post-dated the signing of the relevant DTT. The commentary on Article 4(3) stated that an entity may have more than one place of management, but it can have only one place of effective management at any one time.
Unlike in relation to a corporate, Newey LJ was keen to establish that a trust’s CMC can potentially, be in more than one place and this meant the concept of CMC was not well-suited to perform the function of a DTT POEM test.
Crucially with respect to the particular facts of the Haworth case, it was also legitimate to have regard to the circumstances in which trustees from a particular jurisdiction were appointed.
The case places particular emphasis on the pre-determined plan/ preordained decision making which led to the trustees’ appointment and as such the POEM was in the UK. It was also noted that the location of the trust’s professional advisers will not determine the POEM of the trust (it is not the advice that is relevant but rather who decides to follow that advice) and the POEM should not be determined only by reference to the circumstances at the “moment of disposal”.
JHAB is pleased to announce that Ben Grunberger-Kirsh will be joining the firm later this year as a partner in our market leading energy, infrastructure and construction disputes group. Ben joins us from Vinson & Elkins, where was the lead lawyer on a number of that firms' very largest and most complex international construction disputes.
Ben is described in Legal 500 UK 2023 as a “star” who “is definitely rising fast. He is a wise head on young shoulders. He wins clients’ trust easily and is really coming into his own as a specialist in offshore construction disputes”. Sources also say Ben is “excellent. He is always on top of the detail – he displays creativity in terms of working out what the best points are and how to get them across. Very easy to work with” (Legal 500 UK 2022).
JHAB Presiding Partner James Bremen said "Having Ben join is consistent with our firm's strategy of identifying the very best lawyers in the areas we practice and giving them the opportunity to excel. Ben is a technically superb lawyer, a pleasure to work with and has a very strong record of being successful in his cases. As London's elite dispute resolution firm our absolute focus is on bringing the most effective and talented lawyers together to achieve exceptional outcomes for clients. Our proposition to clients and lateral partners is simply that we have the best lawyers, are conflict free and that our only interests are practising law at the very highest level and helping our clients achieve their goals."
On 19 March 2019 the Court of Appeal handed down its judgment in Christianuyi Limited & Others v HMRC [2019] EWCA 474 (Civ). The Court of Appeal upheld the decision of the Upper Tribunal (“UT”) that the Managed Service Company (“MSC”) legislation, contained in Chapter 9 Part 2 of the Income Tax (Pensions and Earnings) Act 2003 (“ITEPA”), applies to personal service companies (“PSCs”) who engage accountancy service providers.
HMRC has recently increased enforcement in this area and this insight revisits the background to Christianuyi. For an analysis of the MSC legislation see this article.
The appellants were all PSCs which were each set up by a company called Costelloe Business Services Ltd (“Costelloe”). The PSCs paid Costelloe a fee for a “standardised package of services” which Costelloe called its “Gold Business Service” (“GBS”). The GBS product included: a) providing a registered office for the PSC; b) dealing with invoicing; c) managing payroll; and d) preparing and filing annual company accounts and returns and paying Corporation Tax to HMRC.
The PSCs contracted with end clients to provide the services of an individual and charged clients fees for those services. The PSCs almost always paid the individual a combination of minimum wage salary and dividends. This resulted in higher net pay for the individual than if the payment had been treated as employment income and subject to PAYE and National Insurance Contributions (“NICs”) on the whole amount.
If the MSC legislation applies, then all payments to the individual are treated as employment income and taxed as if the individual was employed by the PSC.
The FTT
In the FTT the appellants conceded that Costello was an “MSC provider” within the meaning of section 61B(1)(d) ITEPA but maintained that Costelloe was not “involved with” the appellants within the meaning of section 61B(2) ITEPA. It was common ground between the appellants and HMRC that the other MSC requirements in section 61B(1) ITEPA were satisfied, and the appellants did not argue that the exemptions in section 61B(3) and (4) ITEPA applied.
The FTT held that Costelloe was “involved with” the appellants and dismissed the appeals on the basis that:
· Costelloe benefitted financially on an ongoing basis from the provision of the services of the individual (section 61B(2)(a) ITEPA) because: 1) Costelloe charged a percentage fee linked to payments which the PSC received; and 2) Costelloe collected interest on tax amounts deposited in separate bank accounts by Costelloe;
· Costelloe influenced or controlled the way payments to the individual were made (section 61B(2)(c) because Costelloe decided the level of salary and dividends paid to the individuals; and
· Costelloe influenced or controlled the PSC’s finances or any of its activities (section 61B(2)(d)) because: 1) Costelloe influenced which bank account the appellants used; 2) made tax deductions and collected interest on those amounts in a separate bank account; and 3) for certain periods withdrew amounts from the appellants’ accounts without proper authority.
The UT
The arguments in the UT concerned in summary: a) whether parliamentary material could be used as an aid to statutory construction; b) whether the appellants should be granted permission to resile from their admission before the FTT that Costelloe was an “MSC provider”; and c) whether Costelloe was “involved” with the appellants within the meaning of section 61B(2)(a), (c) or (d) ITEPA.
The UT held that Costelloe was “involved” with the appellants and that it was an “MSC provider” (despite granting permission for the appellants to withdraw their admission on that issue in the FTT).
The UT interpreted some parts of the MSC legislation more widely than the FTT. In particular the UT held at [81] that section 61B(2)(a) ITEPA did not require “any form of correlation or relationship between the amounts earned by the individual and the extent of the financial benefit received by the MSC provider. As long as there is a causal link between the two, the fact that one may fluctuate whilst the other does not is nothing to the point - it is a wholly irrelevant factor.” On that basis, section 61B(2)(a) would appear to be satisfied if the MSCP receives any payment from the PSC for its services which it is expected would be a factor in nearly all professional arrangements.
The Court of Appeal
By the time the case reached the Court of Appeal, the issues in dispute had been narrowed significantly. There was no argument as to whether Costelloe was “involved” with the appellants under section 61B(2) ITEPA. The only argument before the Court of Appeal concerned the interpretation of section 61B(1)(d). This argument was ultimately unsuccessful, and the taxpayers’ appeals were dismissed.
The recent Court of Appeal judgment in Haworth & Ors v The Commissioners for His Majesty’s Revenue and Customs [2025] EWCA Civ 822 has confirmed that an appropriately broad test should be used for the purpose of establishing the place of effective management (“POEM”) of a trust as required by many double tax treaties, confirming that the central management and control test (“CMC”) set out in Wood v Holden (Inspector of Taxes) [2006] EWCA Civ 26, [2006] 1 W.L.R. 1393 does not apply to trusts. While the decision relates to the interpretation of the Double Taxation Treaty (“DTT”) as between the United Kingdom and Mauritius, it may be used by HMRC going forward to determine the POEM of trusts for the purposes of other DTTs as well as for companies and partnerships seeking to rely on DTTs based on the OECD Model Tax Convention (the “Model Convention”). In light of such far-reaching implications, this article details the Court of Appeal’s judgment.
Case Overview
In Haworth the appellants were settlors of three family trusts, appealing the Upper Tribunal’s decision that they were liable to UK capital gains tax (“CGT”) on the disposal of company shares held by the trusts (under s2 TCGA 1992). On the basis that Mauritius did not charge tax on such gains, the appellants’ tax advisers considered that CGT could be avoided through the UK-Mauritius DTT (Art 13) if UK resident trustees (determined under s69 TCGA 1992) were appointed (avoiding any s86 TCGA 1992 settlor attributed gains) in the same year as the Mauritius resident trustees but after the share disposal and a CMC Wood v Holden approach was followed in determining where Article 4(3) POEM attributable primary taxing rights fell.
The appellants argued that the POEM of the trusts was the place in which the relevant decisions were made by their trustees (unless there was any element of “rubber stamping” involved in the decision-making process).
On 1 July 2025, the Court of Appeal rejected this submission and dismissed the appeal. There was some useful and interesting discussion around the interpretation of DTTs.
DTT Interpretation
Newey LJ confirmed that DTTs are not unilateral agreements such that the principles of interpretation followed by one contracting state could be presumed to automatically apply. Instead the role of the court is to establish, by objective and rational means, the common intention which can be ascribed to the two contracting states.
As the UK-Mauritius DTT was based on the OECD Model Convention there was a review of the applicable commentary around determining the meaning of POEM under Article 4(3) including commentary which post-dated the signing of the relevant DTT. The commentary on Article 4(3) stated that an entity may have more than one place of management, but it can have only one place of effective management at any one time.
Unlike in relation to a corporate, Newey LJ was keen to establish that a trust’s CMC can potentially, be in more than one place and this meant the concept of CMC was not well-suited to perform the function of a DTT POEM test.
Crucially with respect to the particular facts of the Haworth case, it was also legitimate to have regard to the circumstances in which trustees from a particular jurisdiction were appointed.
The case places particular emphasis on the pre-determined plan/ preordained decision making which led to the trustees’ appointment and as such the POEM was in the UK. It was also noted that the location of the trust’s professional advisers will not determine the POEM of the trust (it is not the advice that is relevant but rather who decides to follow that advice) and the POEM should not be determined only by reference to the circumstances at the “moment of disposal”.
JHAB is pleased to announce that Ben Grunberger-Kirsh will be joining the firm later this year as a partner in our market leading energy, infrastructure and construction disputes group. Ben joins us from Vinson & Elkins, where was the lead lawyer on a number of that firms' very largest and most complex international construction disputes.
Ben is described in Legal 500 UK 2023 as a “star” who “is definitely rising fast. He is a wise head on young shoulders. He wins clients’ trust easily and is really coming into his own as a specialist in offshore construction disputes”. Sources also say Ben is “excellent. He is always on top of the detail – he displays creativity in terms of working out what the best points are and how to get them across. Very easy to work with” (Legal 500 UK 2022).
JHAB Presiding Partner James Bremen said "Having Ben join is consistent with our firm's strategy of identifying the very best lawyers in the areas we practice and giving them the opportunity to excel. Ben is a technically superb lawyer, a pleasure to work with and has a very strong record of being successful in his cases. As London's elite dispute resolution firm our absolute focus is on bringing the most effective and talented lawyers together to achieve exceptional outcomes for clients. Our proposition to clients and lateral partners is simply that we have the best lawyers, are conflict free and that our only interests are practising law at the very highest level and helping our clients achieve their goals."
On 19 March 2019 the Court of Appeal handed down its judgment in Christianuyi Limited & Others v HMRC [2019] EWCA 474 (Civ). The Court of Appeal upheld the decision of the Upper Tribunal (“UT”) that the Managed Service Company (“MSC”) legislation, contained in Chapter 9 Part 2 of the Income Tax (Pensions and Earnings) Act 2003 (“ITEPA”), applies to personal service companies (“PSCs”) who engage accountancy service providers.
HMRC has recently increased enforcement in this area and this insight revisits the background to Christianuyi. For an analysis of the MSC legislation see this article.
The appellants were all PSCs which were each set up by a company called Costelloe Business Services Ltd (“Costelloe”). The PSCs paid Costelloe a fee for a “standardised package of services” which Costelloe called its “Gold Business Service” (“GBS”). The GBS product included: a) providing a registered office for the PSC; b) dealing with invoicing; c) managing payroll; and d) preparing and filing annual company accounts and returns and paying Corporation Tax to HMRC.
The PSCs contracted with end clients to provide the services of an individual and charged clients fees for those services. The PSCs almost always paid the individual a combination of minimum wage salary and dividends. This resulted in higher net pay for the individual than if the payment had been treated as employment income and subject to PAYE and National Insurance Contributions (“NICs”) on the whole amount.
If the MSC legislation applies, then all payments to the individual are treated as employment income and taxed as if the individual was employed by the PSC.
The FTT
In the FTT the appellants conceded that Costello was an “MSC provider” within the meaning of section 61B(1)(d) ITEPA but maintained that Costelloe was not “involved with” the appellants within the meaning of section 61B(2) ITEPA. It was common ground between the appellants and HMRC that the other MSC requirements in section 61B(1) ITEPA were satisfied, and the appellants did not argue that the exemptions in section 61B(3) and (4) ITEPA applied.
The FTT held that Costelloe was “involved with” the appellants and dismissed the appeals on the basis that:
· Costelloe benefitted financially on an ongoing basis from the provision of the services of the individual (section 61B(2)(a) ITEPA) because: 1) Costelloe charged a percentage fee linked to payments which the PSC received; and 2) Costelloe collected interest on tax amounts deposited in separate bank accounts by Costelloe;
· Costelloe influenced or controlled the way payments to the individual were made (section 61B(2)(c) because Costelloe decided the level of salary and dividends paid to the individuals; and
· Costelloe influenced or controlled the PSC’s finances or any of its activities (section 61B(2)(d)) because: 1) Costelloe influenced which bank account the appellants used; 2) made tax deductions and collected interest on those amounts in a separate bank account; and 3) for certain periods withdrew amounts from the appellants’ accounts without proper authority.
The UT
The arguments in the UT concerned in summary: a) whether parliamentary material could be used as an aid to statutory construction; b) whether the appellants should be granted permission to resile from their admission before the FTT that Costelloe was an “MSC provider”; and c) whether Costelloe was “involved” with the appellants within the meaning of section 61B(2)(a), (c) or (d) ITEPA.
The UT held that Costelloe was “involved” with the appellants and that it was an “MSC provider” (despite granting permission for the appellants to withdraw their admission on that issue in the FTT).
The UT interpreted some parts of the MSC legislation more widely than the FTT. In particular the UT held at [81] that section 61B(2)(a) ITEPA did not require “any form of correlation or relationship between the amounts earned by the individual and the extent of the financial benefit received by the MSC provider. As long as there is a causal link between the two, the fact that one may fluctuate whilst the other does not is nothing to the point - it is a wholly irrelevant factor.” On that basis, section 61B(2)(a) would appear to be satisfied if the MSCP receives any payment from the PSC for its services which it is expected would be a factor in nearly all professional arrangements.
The Court of Appeal
By the time the case reached the Court of Appeal, the issues in dispute had been narrowed significantly. There was no argument as to whether Costelloe was “involved” with the appellants under section 61B(2) ITEPA. The only argument before the Court of Appeal concerned the interpretation of section 61B(1)(d). This argument was ultimately unsuccessful, and the taxpayers’ appeals were dismissed.
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