Timothy Brennan QC and Akash Nawbatt succeed in the Court of Appeal on the ‘Round the World’ scheme
On 8 July 2010 the Court of Appeal handed down judgment in HM Revenue & Customs v Smallwood [2010] EWCA Civ 778, concerning the ‘Round the World’ tax avoidance scheme.
The scheme, devised by accountants in the UK, sought to avoid UK capital gains tax on planned disposals of parcels of shares, by putting the shares into the hands of Mauritius trustees, causing those trustees to sell the shares, and then appointing UK resident trustees. The aim was to avoid the impact of the Taxation of Chargeable Gains Act 1992, s 86 (attribution of gains to settlors with interest in non-resident settlements), by bringing the disposals within the terms of s 77 (charge on settlor with interest in settlement) and then, by taking advantage of the UK/Mauritius double taxation agreement (DTA), to avoid tax in both jurisdictions.
HMRC had succeeded before the Special Commissioners, but that decision was reversed by Mann J on appeal. Allowing HMRC’s further appeal, the Court of Appeal reinstated the decision of the Special Commissioners. The trust was (under Article 4 of the DTA) a resident both of the UK and of Mauritius. The Special Commissioners were entitled, having regard to the carefully orchestrated steps which were taken, and the control of the scheme of management of the trust, to conclude for the purposes of the residence tie-breaker in the DTA that the place of effective management of the trust was in the UK. Consequently, the UK could tax the gains on the disposals.
There are understood to be 95 other cases using the Round the World scheme with total tax at stake of around £70 million.
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