Place of effective management

The place of effective management (POEM) is the tie-breaker test found in Article 4 of the model OECD convention where a person, not being an individual, is resident under the domestic laws of both of the contracting states.

In Smallwood v HMRC SpC 669, a commonly used UK-Mauritian double tax treaty capital gains tax planning scheme has been held to fail on the ground that the POEM was in point and, under the UK and Mauritian tax treaty, the POEM tie breaker determined the trustee was UK resident.

The judgment provides an extensive commentary on the POEM, distinguishing its application from the "De Beers" central control and management test found in UK domestic law. With the judgment being given by John Avery-Jones, an undoubted authority in the field, his analysis is sure to receive plenty of attention, which leaves it a shame that the judgment does rather fizzle out when, having extensively rehearsed the applicable law, its application to the facts is rather on the skinny side.

In this regard, it is clear that the POEM was held to be the UK on the basis that KPMG were in the UK, but there is insufficient examination of the capacity in which KPMG were held to be "calling the shots" as the devisors of the tax planning scheme. With there being over £3M at stake, it is probable that the decision will be appealed and we can but can but hope that the High Court will take the opportunity to clarify the capacity of the adviser when it comes to the determination of the POEM tie-breaker.