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Smallwoods lose out as leave to appeal in effective management case is refused

27 January 2011

The Supreme Court in London has refused the taxpayers in the Smallwood v HMRC dispute leave to appeal in a case that has implications for corporate taxpayers.

"This means that the case is now settled," said Andrew Watt, of Alvarez & Marsal – Taxand.

The importance of this dispute lies in the use of the tiebreaker place of effective management (POEM) test, which features in many double tax treaties of the UK for determining the place of residence of a trust or company.

In a split decision, the three judges of the Court of Appeal ruled in July last year that the UK/Mauritius double tax treaty did not provide protection from a UK capital gains tax charge that should have been incurred by the trust after the disposal of shares.

Using a 'round-the-world’ scheme, Mr and Mrs Smallwood claimed double taxation relief on the capital gain from asset sales during a year when the trustees of their family settlement were resident both in the UK and Mauritius, and there was no capital gains liability in Mauritius.

'Round-the-world’ schemes...

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