In Lee & Bunter vs Commissioners for HMRC [2017] TC05757, the First Tier tribunal (FTT) found that a tax scheme which aimed to avoid capital gains tax (CGT) for an offshore trust by taking advantage of the double tax treaties failed: the trust was effectively managed in the UK and so resident here.

  • Mr Lee and Mr Bunter were settlors and among the beneficiaries of trusts set up as a result of a successful management buy-out of Ford’s mobile telephone business.
  • In 2002 Vodafone made an offer for the business, and to avoid some £5.5million in CGT the settlors changed the trustees from a Guernsey company, to one resident in Mauritius but owned by Deloittes, in anticipation of a sale.
  • Vodafone accelerated the sale date to 2003. Eight days later, at the settlors’ instruction the Mauritian trustees resigned and were replaced by UK corporate trustees, also owned by Deloittes.

The appellants relied on the provisions of the Double Tax Convention (DTC) between the UK and Mauritius as having the effect of transferring the right to tax the gain where the trustees were located, in Mauritius. They then crystallized the gain in Mauritius, before moving the trust back to the UK in the same tax year. The “tie-breaker” clause in the DTC would ensure taxation of the gain in Mauritius (the “round the world” scheme).

HMRC contended, as they did in the case of Smallwood & Anor (a 2010 case involving the same planning technique) that because the key management decisions relating to the trust had been taken in the UK rather than Mauritius, the POEM was the UK, and this was where the gain should be taxed.

HMRC also introduced a new secondary argument, which was that the DTC treated the settlement only as resident in Mauritius, whereas HMRC were not taxing the Settlement but the Trustees, who were contended to be a “single and continuing body of persons constituting the UK resident trustees of the settlement”. The tribunal judge referred to this as the “different persons” argument.

The judges found that:

  • The Mauritian trustees understood the general nature of “round the world” schemes, but very limited knowledge of the specifics of the deal between the trusts and Vodafone
  • Whilst nothing was recorded in writing, there was a clear understanding by the Mauritius trustees that they would execute the necessary steps to facilitate the sale in a manner that was determined by the appellants, that is to say “the shots were called” in the UK.
  • Because of the above, and the trustee’s lack of understanding of the Vodafone arrangement, there was no way in which their function could be described as management of the trust assets, they were effectively merely taking instruction
  • Therefore the POEM was judged to be where instructions were being issued, which in this case was the UK

The appeals were dismissed.

Tthe judge did take the time to consider HMRC's “different persons” argument. He agreed with the appellants that the focus of the DTC is the category of the income or gain, and not the identity of the taxable person. As a consequence, there is nothing in the DTC which “dictates how the relevant Contracting State may tax the profits, or on whom the burden of tax is likely to fall” The purpose of the DTC was simply to establish the jurisdiction in which the gain should be taxed, not to establish how it will be taxed. HMRC’s contention in this part was therefore rejected.


  • It may well be the case that advisors have been faced with variants of the “Differing Persons” argument where HMRC are having difficulty with establishing a UK POEM for planning of this nature. The tribunal’s decision should give advisors some clarity on this matter.
  • The case illustrates the importance of ensuring that overseas trust companies can sufficiently demonstrate their independence, and their competence to manage and provide advice to their trustees and interested parties, rather than merely following instruction.
  • Although the judge stated that no weight was given to the fact that neither appellant gave verbal or written evidence in the case, it is worth noting that there are very few circumstances where not giving evidence at tribunal adds weight to one’s case.


Non-resident trusts

Lee & Bunter vs Commissioners for HMRC [2017] TC05757


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