The distinction between place of effective management (POEM) and central management and control (CMC) has long been a source of uncertainty in tax law. Are they interchangeable, or are they conceptually and functionally distinct? In Haworth v HMRC [2025] EWCA Civ 822, the English Court of Appeal has provided much-needed clarity—ironically, in a case that centred around the use of Mauritius to shift tax residence. The decision confirms not only that POEM and CMC are different tests, but also that merely engineering changes in form, without a shift in substantive control, will not succeed.
The Facts
The case involved a family trust holding shares in a UK-incorporated company. Shortly before a planned disposal of those shares, the trustees were changed from Jersey-based to Mauritian trustees. The intention was to claim the benefit of the UK–Mauritius Double Tax Treaty (DTT), under which capital gains realised by a Mauritian resident trust would not be subject to UK Capital Gains Tax (CGT). After the disposal, UK trustees were reappointed within the same tax year. This arrangement—known in tax planning circles as the “flip-flop” structure—has previously been scrutinised in the courts.
HMRC challenged the effectiveness of the treaty claim, asserting that the POEM of the trust remained in the UK throughout. Both the First-tier Tribunal and the Upper Tribunal found in HMRC's favour.
The Decision
The Court of Appeal unanimously dismissed the trustees' appeal and confirmed three important points:
- POEM and CMC Are Not the Same: The Court held that POEM, as used in tax treaties, is a distinct international law concept and cannot be equated with the domestic test of CMC. Unlike CMC, which can arguably be exercised from more than one location, POEM is singular: it must be located in one jurisdiction, and is determined by reference to where the key strategic decisions are in fact made.
- Substance Prevails Over Form: The Court found that the appointment of Mauritian trustees did not shift effective management. They had simply implemented a pre-ordained plan devised and controlled by UK-based advisers and settlors. The real decisionmaking power—what the Court called the “overarching strategic management”—remained in the UK.
- Endorsement of Smallwood: The Court affirmed the approach in Smallwood v HMRC [2010], emphasising that POEM must be assessed holistically, taking into account the commercial and factual reality, rather than focusing narrowly on who signed the disposal documents or where the trustees were formally resident.
Conclusion
Haworth is a significant decision that reinforces a clear doctrinal and practical distinction between POEM and CMC. It confirms that POEM, as a treaty concept, hinges on where genuine, autonomous, high-level management takes place. The re-labelling of trustees and relocation of formal residence, without a corresponding shift in real control, will not suffice.
For practitioners and fiduciaries, the message is clear: where effective control remains, tax residence will follow. The “flip-flop” structure, once seen as a technical route to treaty access, has now been firmly rejected in principle. In this case, Mauritius provided not just the attempted planning route—but, ultimately, the answer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
