Redevco Properties UK 1 Limited v The Commissioners for HMRC

Redevco, which owned a portfolio of retail estate investments, was incorporated in the UK on 16 November 2004 and was, until 15 January 2008, was resident in the UK for tax purposes. It is a member of a corporate group, the origins of which can be traced to the C&A fashion retail chain founded in the Netherlands in 1841. COFRA is the ultimate parent company of that group.

The C&A chain began trading in the UK in the early 1920s. It opened stores gradually throughout the country and bought properties (in the main either as freeholds or on long leases) as the business expanded. The properties it acquired were mostly retail stores but also included storage facilities and office accommodation held by local UK subsidiaries which C&A occupied under licence arrangements. In 2000, although it continues to be a major retail chain throughout much of Europe, it was decided to close the C&A stores in the UK due to their poor performance. At the time of closure there were 109 C&A stores in the UK.

Between 1999 and around 2002 the business of the group was reorganised and COFRA (which is resident in Switzerland) was introduced as the ultimate parent company. The group’s business consisted of a fashion retail division trading under the “C&A” name, a property investment management division, Redevco Properties Holding BV (“Holding”), with its managerial headquarters in the Netherlands, and (from around 2002) a private equity investment division known as “Bregal”.

The former C&A properties in the UK remained in the ownership of the original subsidiaries which were moved to a UK intermediate holding company, UK Redevco Properties, a private unlimited company incorporated in England and Wales whose parent was Holding in the Netherlands. New tenants were found where vacancies had arisen due to the closure of the C&A stores and those properties in the less attractive or secondary locations were sold with UK Redevco Properties concentrating on developing and acquiring properties in prime locations.

The incorporation of Redevco, on 16 November 2004, was part of a major asset-backed securitisation undertaken by Holding which sought to raise capital to invest in the expansion of its property investment business in the UK by releasing value from its existing portfolio of mostly prime retail properties and then using that capital to develop its business by the acquisition of new properties and the redevelopment of existing ones.

In late 2006 the management of Holding started to consider the feasibility of moving the management of Redevco to the Netherlands in order better to co-ordinate its management with that of the group and, in particular, with that of the securitised sub-group of which it was the only non-Dutch managed member. As part of that process advice was sought from leading counsel as to whether the UK would be able to impose an exit tax charge on Redevco’s migration.

The ‘Instructions to Counsel’, prepared by PricewaterhouseCoopers LLP (“PwC”), commence by referring to the proposed migration of Redevco and PwC’s view that certain areas of tax law legislation were contrary to EU law before stating:

“Depending on Counsel’s views as to the prospects of success, [Redevco] may seek to insure against the risks of litigation.”

The Instructions continue and, in the section setting out the ‘Reorganisation Details’ state that the “plan” was to transfer the management of the company from the UK to the Netherlands on 1 March 2007. The Instructions also state that details of the “forthcoming emigration” of Redevco, “will be given to the UK tax authorities on 10 January 2007, as required under the provisions of Finance Act 1988.”

There is no indication in the Instructions that the decision as to whether the migration would take place was dependent on the opinion of counsel. Also, although not produced, Appendix 4 to the Instructions to Counsel comprised a draft of the notice to be given to HMRC in relation to the migration and counsel was asked whether he had any comments on this draft notice.

On 6 December 2006 a conference was held at the chambers of leading counsel. It was attended by Mr Drury and a Mr Bradford of COFRA and representatives of PwC. A Note of Conference settled by leading counsel records that:

“The conference was called to discuss the migration of … [Redevco] from the UK to the Netherlands as set out in Counsel’s Instructions. These notes of conference should be read in conjunction with the Instructions.”

The Note continues:

“4.

Counsel is strongly of the view that corporate exit charges are contrary to EU law, however this matter has not yet been tested in litigation before the ECJ. Counsel’s view is a widely held one; indeed, he believed, a universal one at the Tax Bar. Exit charges were considered in two cases concerning individuals, de Lasteyrie, concerning the French exit charges, and N, concerning exit charges in the Netherlands. Both cases were decided in favour of the taxpayer. …

5.

While both the precedent cases concerned individual taxpayers, Counsel considered that the analysis for a corporate was the same. ...

6.

Counsel circulated a paper on Exit Charges which had been prepared by the Law Society’s International Tax Sub-Committee, of which he is a member, which had come to the same conclusion. Counsel noted that the issue of such a paper by the Law Society was indicative of the broad consensus on this issue within the legal profession.

7.

Counsel added that he believed that HMRC understood the weakness of the UK exit charge legislation in its current form under EU law and are undertaking a review of the changes which would be required to make it compliant. He thought that the most likely response compatible with EU law might be to have a ‘trailing’ exit charge which would tax a company, which had ceased to be resident, on disposals of UK assets within a period of 3-5 years, at most 6, years after migration, based on the market value at migration but adjusted downwards in the event that the value of the assets had decreased in the period to the actual disposal.

There was some discussion of whether such an approach could also be seen as discriminatory. There was also a discussion whether this might be introduced with effect for disposals made after the legislation came into force, but in respect of companies which had moved residence prior to the change in the law: no definitive view on this point could be reached at present.

…

11 … Counsel said that the UK exit charges are, in his opinion, contrary to EU law and he is not aware of any other Counsel taking a different view. [Redevco and the group] had a particularly good set of facts. HMRC will presumably open an enquiry into the returns submitted by the companies and will not readily concede that no exit charge arises but they will be aware of the weakness of their case and so will have no appetite for litigation. While the companies might wish to bring the issue to litigation, it was not likely that this would be achievable within a reasonably short time frame.

12 … Counsel stated that he did not consider the plan of migration to be aggressive tax planning. It was not artificial but commercially driven and was aimed at uniting the management of the UK properties in the Netherlands. The only reason why the management was not united in the first place was the UK tax charge. If anything is aggressive, it is the failure of the UK to come to terms with its responsibilities under EU law.”

No further advice was obtained from any other source. Neither was any update sought from leading counsel between the date of his advice in December 2006 and the migration of Redevco in January 2008. There was also no contemporaneous document such as board minutes or emails that confirmed that leading counsel’s advice had been shown to the board and it was on that basis the decision was taken for the migration of Redevco.

The Law Society paper referred to by leading counsel was published on 1 August 2007 and stated, so far as material:

“5.

We are of the view that in its present form the exit charges [sic] provisions (in section 185) breach EU law and specifically Article 43 of the EC Treaty which prohibits (as extended by Article 48) restrictions on the freedom of establishment of natural persons and companies in the EU.

6.

However, in the light of the ECJ Decisions in the De Lasteyrie and N cases (see below) some form of deferred charge would be a more acceptable and proportionate measure, in particular, if it was to be realised only on the disposal of the asset within 6 years of migration (with no charge after that date) …

14.

We believe that this decision [Case C-9/02 Hughes de Lasteyrie du Saillant v Ministère de l’Économie, des Finances et de l’Industrie EU:C:2004:138] and the court’s reasons for the decision confirm that the UK exit charges are unlawful. A UK corporate taxpayer which maintains its residence in the UK is not normally taxed on unrealised gains whereas a UK corporate taxpayer which ceases to be resident in the UK is taxed on unrealised gains. This means that a UK corporate taxpayer which ceases to be resident in the UK is treated disadvantageously in comparison with a UK corporate taxpayer which maintains its UK residence. The likely effect of this difference in treatment is to dissuade UK corporate taxpayers from transferring their residence elsewhere. In this way, exit charges hinder UK companies’ freedom of establishment.

…

29.

The Commission considers that the ECJ’s interpretation of EC Law implies conclusions as regards exit taxes for all tax payers including companies. The Commission also supports our analysis of the application of ECJ law to the UK domestic legislation and recommends a co-ordination [sic] approach in this area between Member States.

…

Conclusion and proposals

39.

On the basis of our analysis, we conclude that exit charges in their present form are in clear breach of Article 43 of the EC Treaty. Taxing residents on a realisation basis and departing residents on an accruals basis is a difference in treatment which constitutes an obstacle to free movement. Nor can the provisions be justified either on the grounds of preventing tax avoidance or ensuring cohesion of the tax system. They are, therefore, vulnerable to a successful challenge before the European Court of Justice.

…

42.

A modification of the rules is required. The starting point could be the postponement of the charge to tax until the realisation of the asset by the company within a 6 year period; a similar period is used where a subsidiary of a UK parent migrates. The charge will be calculated by reference to the gain (if any) accrued during the period of residence but with some mechanism to ensure that if the gain actually realised on disposal was smaller than the gain calculated at the date of migration the charge would only arise on the smaller amount.

43.

However, such a modification would have to take into account a number of factors:

- First, in the light of the decision in the de Lasteyrie and N, no form of security or guarantee could be required, both constituting a restrictive effect in that the taxpayer is deprived of the enjoyment of assets used to support the security or guarantee.

- Any means of preserving the tax claim must be strictly proportionate to that objective and must not entail disproportionate cost for the taxpayer.

- Thirdly, and more significantly, to avoid double taxation (and double non taxation) and mismatches in asset valuation methods it will be necessary to take into account the position in other Member States. This would require co-ordination at the EU level including a review of the basis on which non UK companies migrating to the UK are taxed on gains which have accrued before migration.

44.

Until a co-ordinated regime on exit charges can be agreed between EU Member States, we believe that gains accruing before migration to the UK are not taxed in the UK, and gains which have accrued during residence but are not realised before migration from the UK are taxed on a deferral basis.

45.

The charge in those circumstances would be deferred until the asset was sold within 6 years of migration and calculated by reference to the lower of an agreed market value at the date of migration and the actual disposal proceeds.

46.

In all cases however, there should be no exit charge if disposal of the asset occurred more than 6 years after migration”

On the basis of the advice it had received that, as Mr Faber put it, “there was a very good chance of succeeding in arguing that the tax was not due”, Redevco moved its place of effective management from the UK to the Netherlands on 15 January 2008 thereby becoming non-resident for tax purposes in the UK.

The following is taken from the Statement of Agreed Facts and Issues produced by the parties on 12 April 2022:

By the time of the hearing the issues between the parties, as stated above, had narrowed leaving only the following to be determined:

Also, HMRC, having been criticised for failing to do so sooner, produced the following alternative conforming interpretations for s 59D(1) TMA following the short adjournment on the second day of the hearing:

As Redevco has raised the issue of legitimate expectation, as an element of legal certainty, an essentially fact based argument, further findings of fact are required in relation to whether the migration was solely for commercial reasons and whether it would have happened at all if the advice Redevco received from leading counsel had been different or less positive.

On the first I find that the migration was primarily for commercial reasons although, given, as Mr Faber agreed, that the migration did result in tax advantages for Redevco, tax considerations certainly played a part in the decision.

Although the evidence of Mr Drury that the decision to migrate was not a “foregone conclusion” and that of Mr Faber was that the migration would not have occurred if Redevco had not received positive advice from leading counsel, the contemporaneous documentation does not support such assertions. As such, I find that it is more likely than not that the migration would have proceeded in any event irrespective of the advice of leading counsel.

Under s 6 of the Income and Corporation Taxes Act 1988 (“ICTA”) and s 8 TCGA 1992, the taxable profits of a UK resident company include chargeable gains accruing to the company in the relevant accounting period.

In so far as material for present purposes section 185 TCGA provides:

Paragraph 10A of schedule 9 to the Finance Act 1996 provided, at the material time:

At the relevant time s 59D TMA provided:

Article 49 TFEU prohibits restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State. It provides:

Under Article 54 TFEU, companies formed in accordance with the law of a Member State who have their registered office, central administration or principal place of business within the EU are treated as nationals of Member States it provides:

I have not referred to schedule 3ZB to TMA, inserted by paragraph 6 of schedule 49 to the Finance Act 2013, which came into effect on 11 December 2012 (which makes provision for the payment of tax to be deferred) or Article 5 of Council Directive (EU) 2016/1164 of 12 July 2016, the Anti Tax Avoidance Directive which was implemented in the UK (by paragraph 11 of schedule 8 to the Finance Act 2019 by the insertion of a new s 184J TCGA) on 1 January 2020 as neither were in force at the time of Redevco’s migration and cannot therefore apply in the present case.

In Panayi the Tribunal (Judge Mosedale) considered s 80 TCGA which provided:

The issue between the parties was whether the s 80 TCGA exit charge on trustees if they (or a majority of them) ceased to be resident in the UK, was compatible with EU law, and in particular compatible with the fundamental freedoms (of establishment, of provision of services and of movement of capital) guaranteed by the TFEU. Having made a reference to the Court of Justice of the European Union (“CJEU”), an option not open to me, Judge Mosedale summarised the Court’s decision at [55]:

“The CJEU was clear that existing UK law (as explained to them) was in breach of the appellant’s right to freedom of establishment. That was because the appellant did not have the option to defer payment of the tax,”

The issue for Judge Mosedale was therefore, as in the present case, whether a conforming interpretation could be given to UK law and the effect that has on the appellant’s appeal.

The arguments of parties in Panayi were also similar to those in the present case. These were summarised by Judge Mosedale as follows:

“18.

HMRC’s position, in brief summary was that the s 80 tax charge was lawful; what was disproportionate was the timing of the liability to pay the tax charge, and in particular the lack of option to defer payment of it. The Tribunal, said HMRC, should look at the provisions on timing (contained in the Taxes Management Act 1970 – ‘TMA’) rather than the charging provisions (contained in the TCGA) and consider whether a conforming interpretation of the TMA was possible; and if a conforming interpretation was not possible, it was the TMA which fell to be disapplied to the extent necessary to allow the payment of the tax to be deferred.

19 The appellant’s case, in brief summary, was that a conforming interpretation was not possible for various reasons including that it was not possible to alter history and give the trustees an option to defer which they did not have at the time the tax charge arose in 2004/5; the only manner in which the Tribunal could abide by the CJEU ruling was therefore to disapply the s 80 charge because that was the only remedy for failure to give an option to defer in 2004/5. The appellant relied on the fact that the CJEU were well aware that the shares were realised before the date the tax charge arose or was due for payment but still considered UK law to be disproportionate: the only way (said the appellant) of implementing the CJEU’s decision was therefore to disapply s 80; anything else would fly in the face of the CJEU ruling.”

Having referred to the various conforming constructions suggested to her, Judge Mosedale set out the following principles of conforming construction:

In relation to the ‘restrictions’, (viii) – (x) above, Judge Mosedale observed, at [94], that although itemised separately “they seem to express similar, perhaps identical, concepts.” She said:

“99.

The cases indicate that a conforming interpretation in tax cases at least does not go against the grain or contradict a cardinal feature of the legislation where a tax relief is extended, or a tax charge restricted, as long as there is still scope for some taxpayers to be outside the scope of the relief or within the charge to tax.

…

101.

The due date for payment of the exit charge was, as I have said, not provided for in the TCGA but under the TMA. It is difficult to see that it was a cardinal feature of UK legislation that a s 80 charge should be paid on this particular date: the legislation which provided for the charge was in an entirely different Act to the legislation which provided for the date of payment. It looked as if Parliament had intended there to be an exit tax, but had been content to let the normal rules for due dates which applied to virtually all other direct taxes to apply to that exit charge. The due date for payment did not appear to be a fundamental feature of the exit charge.

102.

It seems to me that the ‘grain’ or cardinal feature of s 80 TCGA is that the UK government intended there to be a tax on exit; as s 80 itself does not provide when that tax is payable, the timing of the payment of the tax is not fundamental to the exit charge. As long as the exit charge is payable at some point, it is consistent with the grain of s 80 for a conforming interpretation to alter the timing of the payment.

103.

Moreover, altering the due date for payment of the s 80 charge does not go against the grain of s 59B either; s 59B itself provides for various due dates (eg s 59B(3) and (6)) and elsewhere in the legislation there is provision in some cases for deferred payment:

(1)

s 280 TCGA which permitted payment by instalments where the consideration was paid in instalments;

(2)

s 281 TCGA which permitted payments in instalments on gifts; and

(3)

the various hold over reliefs which could be seen as provisions which defer tax liability until (subsequent) realisation of the assets;

(4)

s 55 TMA also permitted deferral where the liability to the tax is reasonably in dispute.”

Judge Mosedale continued by considering whether a conforming construction could be retrospective. Having considered the judgment of the House of Lords in Fleming (trading as Bodycraft) v HMRC [2008] 1 WLR 195, a case concerning disapplication as opposed to conforming constructions, and the “somewhat different opinions” of the five law lords in that case, she said:

“115.

Even assuming that what was said in Fleming by the majority (Hope, Neuberger and Carswell) applied equally to conforming interpretations as to disapplications, it cannot be understood as a complete bar on conforming interpretations on the grounds they are retrospective. If it was, the Court of Appeal would have said so in later cases and conforming interpretations would be impossible.

116.

This is because any conforming interpretation could in theory adversely affect a taxpayer who chose not to do something (eg exit to another EU state or pay dividends to parent in a different EU state) because of the naturally interpreted national legislation, but who would have done it had that taxpayer understood what the legislation actually was once given a conforming interpretation (such as a right to defer tax due on exit or pay dividends with tax credit). Without a conforming interpretation, that taxpayer may have a right for damages against the member State concerned; with it, it has no right to damages. But EU law itself imposes the obligation to make a conforming interpretation, and so the fact a conforming interpretation is retrospective cannot be a bar to making it.

117.

Fleming, I think, must be understood as a case which dealt with national law which imposed restrictions on the exercise of EU law rights. It was not a case which dealt with conforming interpretation to give effect to EU law rights. It should not be read across as barring conforming interpretations because any conforming interpretation has the potential to retrospectively affect taxpayers.”

In Gallaher Limited v HMRC [2019] UKFTT 207 (TC) the Tribunal (Judge Beare) had considered whether UK domestic tax provisions relating to inter-group disposals were compliant with EU law provisions. Like Panayi and the present case it concerned the issue of whether a conforming construction should be applied. However, in Gallaher Judge Beare came to the conclusion, at [199] that a conforming interpretation should be rejected as it was:

“… beyond the competence of the UK courts to choose between various proportionate options because that would involve legislating and is therefore something which can be done only by Parliament”

However, Judge Mosedale, having reviewed the authorities on which Judge Beare had relied, came to a different conclusion saying:

“137.

My conclusion is that it is clear that some choices should not be made by the courts. Lord Nicholls in Ghaidan viewed choices between options which ‘would have had exceedingly wide ramifications, raising issues ill-suited for determination by the courts or court procedures’ as prohibited. In IDT at [113] the Court of Appeal suggested that a conforming interpretation that impinged on rights of third parties would be a situation where a conforming interpretation ought not to be made. So the FTT can choose between different options for conforming interpretations, but only where it does not involve making decisions with far-reaching consequences which are difficult to assess or where it involves making choices between competing rights of different persons.

138.

In my view, none of the conforming interpretations put forward in this appeal involve competing rights of different persons. Whichever option was chosen would affect the trust’s liability to the tax and (if payable) its liability to interest on the tax (as it would affect the due date of payment). But none of the options would affect anyone else’s rights. Nor would any of the proposed conforming interpretations involve consequences the Tribunal cannot evaluate: there would be no knock-on effect.

139.

In conclusion, the fact that making a conforming interpretation will necessarily involve me in deciding which of the proposed conforming interpretations is the most appropriate, does not mean a conforming interpretation should not be adopted. I am unable to agree with Judge Beare in Gallaher.”

Judge Mosedale then considered whether a conforming construction would involve too much detail. In doing so she referred to legislation that was subsequently introduced to address the issue of exit charges for trusts and although the provisions were “extremely detailed” (see at [141]) she agreed with HMRC’s counsel that there was “no need for an option to defer to be set out in great detail” (see at [143]) concluding that:

“145.

… the breach of EU law ostensibly made by the UK legislation at issue in this appeal is capable of remedy by a conforming interpretation as explained in the authorities including Vodafone II.

146.

It will involve choices, but not choices that a court or tribunal should not make.”

She then set out, at [148], the following principles on which that choice mut be made:

Having applied these principles Judge Mosedale concluded at [166]:

“My decision is that a conforming interpretation is possible for all the reasons above. That conforming interpretation is that s 59B TMA, at a time before the legislation was actually amended to comply with EU law, should be read in cases where the taxpayer’s right of freedom of establishment would otherwise be infringed, as including an option to defer payment of s 80 exit tax in 5 equal annual instalments, without liability to interest. (Interest would of course arise under the normal legislative provisions (s 86 TMA) to the extent that an instalment was unpaid after its due date). Early realisation would not precipitate liability nor could security be required.”

The decision of Judge Mosedale in Panayi was effectively approved by the Upper Tribunal (Falk J, as she then was, and Judge Herrington) in Banks v HMRC [2020] STC 996 which noted, at [237]:

“The conforming interpretation that Judge Mosedale chose in that case [Panayi], as set out at [166], was that the legislation in question should be read as including an option to defer payment of the s 80 TCGA exit tax in five annual instalments, without liability to interest. In doing so, Judge Mosedale adopted an interpretation which clearly recognised and built on the specific defect that the CJEU had identified in the legislation in its judgment following the FTT’s reference, and reflected earlier case law which indicated that setting the period at five years was proportionate (see para [28] of Panayi).”

The Upper Tribunal went on find that it was unable to derive assistance “to any material extent” from either Panayi (or Gallaher) saying, at [242], that the cases did not establish any precedent and were decided on their own particular facts but noted that;

“… in Panayi, the FTT had the assistance of CJEU case law which set out a clear framework within which it could make its choice of conforming interpretation. The position was similar in Vodafone 2, where at [59] the Court of Appeal said that it chose a conforming interpretation that ‘faithfully follows a conclusion of the [CJEU]’.”

About the same time as Judge Mosedale was hearing Panayi, the case of Routier v HMRC (No 2) [2021] AC 327 was being heard by the Supreme Court. It handed down its decision on 16 October 2019 shortly before the decision in Panayi was released on 24 October 2019.

The issue before the Supreme Court in Routier was whether, as the Court of Appeal had held, a conforming construction could be given to s 23 of the Inheritance Tax Act 1984 to permit relief from inheritance tax to be given where the relevant charity both satisfied UK requirements concerning a charity and was based in either an EU or third country which had an information exchange with the UK. Lord Reed and Lord Lloyd Jones (with whom Baroness Hale, Lord Carnwath and Lord Hodge agreed) said:

“50.

On its face, section 23 of the Inheritance Tax Act does not impose any restriction on the free movement of capital. In particular, it does not discriminate between gifts to charities governed by the law of the United Kingdom and gifts to charities governed by the law of other EU member states or third countries. It is, on its face, entirely compliant with article 56 TEC. That is so even if section 272 of the Inheritance Tax Act and section 989 of the Income Tax Act are taken into account, since those provisions, on their face, are equally non-discriminatory.

51.

The only relevant restriction which existed at any material time, and with which this appeal is concerned, is the restriction imposed by the judicial gloss which was placed on the words now found in section 989 of the Income Tax Act in the case of Dreyfus [1956] AC 39: a restriction which, when incorporated into section 23 of the Inheritance Tax Act, has the effect of confining relief under that provision to trusts governed by the law of a part of the United Kingdom and subject to the jurisdiction of United Kingdom courts. There can be no doubt that the Dreyfus gloss on the language of section 989 of the Income Tax Act, as applied to section 23, is incompatible with article 56 TEC. It is plain that the restriction of relief from inheritance tax to trusts governed by the law of a part of the United Kingdom cannot be justified under EU law.

52.

Article 56 TEC is directly applicable as law in the United Kingdom, and must be given effect in priority to inconsistent national law, whether judicial or legislative in origin. It follows that the Dreyfus gloss on the language of section 989 of the Income Tax Act cannot be applied to section 23 in situations falling within the scope of article 56. The resultant position is as set out in para 49 above: applying section 23 without incorporating the Dreyfus gloss, there is no relevant restriction on the availability of relief beyond the conditions appearing on the face of the provision. That result is in conformity with article 56. Since it is undisputed that the Coulter Trust satisfied those conditions at the relevant time, it follows that it qualifies for the relief.

53 That is the conclusion which the Court of Appeal should have reached, once it had decided that the Dreyfus gloss on the language of section 989 of the Income Tax Act, if incorporated into section 23 of the Inheritance Tax Act, imposed a restriction which was incompatible with article 56. Having reached that decision, the court could not apply that entirely judge-made restriction, and therefore had to apply section 23 without the gloss placed on the language used in section 989 of the Income Tax Act in the Dreyfus case. It would then have arrived at a result which complied with article 56.

54 With great respect to the Court of Appeal, it should not have concerned itself with a hypothetical restriction concerned with the existence of mutual assistance agreements, even if it considered that such a restriction might have been justifiable under EU law and might have been imposed by Parliament. The fact was that there was no such restriction in existence. Neither section 23 of the Inheritance Tax Act nor section 989 of the Income Tax Act made relief for trusts in third countries conditional on there being a mutual assistance agreement in place. The fact that such a restriction, if it had existed, might have been in conformity with EU law did not mean that it could be imposed by the court, by means of a purported interpretation of the language used in section 23.

55 Having reached the conclusion that section 23 of the Inheritance Tax Act can be brought into conformity with article 56 by disapplying the Dreyfus gloss on the meaning of the words contained in section 989 of the Income Tax Act, and that, having done so, the gift to the Coulter Trust qualifies for relief under section 23, it is unnecessary for this court to decide the other issues in dispute between the parties: in particular, whether the Court of Appeal was correct to hold that the Dreyfus gloss applied to both limbs of section 23(6), and whether it was correct to hold that a general requirement that there be a mutual assistance agreement in place at the time of the testator’s death would constitute a justifiable restriction on freedom of movement of capital under EU law. The Court of Appeal’s decision cannot stand, even if it was correct in its determination of those issues.”

It is clear from this, as Mr Elliott submits, that Routier,rather than being authority for the limitation or restriction on a conforming construction, concerned the effect of an entirely judge-made restriction and, as such, provides little, if any assistance, in the present case.

Mr Margolin, having referred to the principles of conforming construction and the decisions of the House of Lords from which they flow (Pickstone v Freeman [1989] AC 66, Lister v Forth Dry Dock [1990] 1 AC 546 and Ghaidan v Godin-Mendoza [2004] 2 AC 557) contends that the conforming construction sought by HMRC in this case “goes well beyond the scope of those illustrated in those three House of Lords cases” and that what I am being invited to do by HMRC is to “write into the legislation something that is entirely new” which “would amount to impermissible judicial legislation.” As such, he says, that I should give effect to EU law by disapplying the incompatible domestic provisions with the result that Redevco should not be required to pay the tax in dispute.

Mr Elliott, for HMRC, contends that, as in Panayi, a conforming construction which follows the jurisprudence of the CJEU can be applied to s 59D TMA and, given its approval by the Upper Tribunal in Banks v HMRC, invites me, as a matter of judicial comity (unless I consider it to have been wrongly decided) to follow Panayi in this case.

The principle of judicial comity was succinctly described by Judge Brown KC in the case of The Executors of the Estate of Linington and another v HMRC [2023] UKFTT 89 (TC). She said, at [177]:

“In summary, the principle requires that whilst courts of competent jurisdiction are not bound by the legal conclusions of one another’s judgments, such conclusions will be highly persuasive and should be followed unless the second court is convinced that they are wrong.  There was some debate as to the meaning of “convinced” (established by the Upper Tribunal to be the same as “satisfied” - see Gilchrist v The Commissioners for Her Majesty’s Revenue and Customs [2014] UKUT 169 (TCC)), and whether the second court (or Tribunal) must consider them to be “plainly” or “clearly” wrong (as determined in HMRC v Abdul Noor [2013] UKUT 71 (TCC)).

Linington concerned IHT planning arrangements that were “broadly” the same as those in the case of Salinger and Kirby v HMRC [2016] UKFTT 677 (TC). Although the principle of comity was considered, the parties agreed that Judge Brown should “simply” reach her decision on the law and facts of the case. If, as a result, she came to a different conclusion than the Tribunal had in Salinger, she should determine the appeal by reference to her own conclusions without considering whether she “was ‘convinced’ or ‘satisfied’ that Salinger was wrong” (see Linington at [178]).

This is, in fact, exactly what she did saying, at [179]:

“I express no view on whether, in the light of the evidence available to it, the Tribunal in Salinger was wrong, but I have reached a different conclusion by reference to the evidence and legal arguments as they were presented to me.”

It is clear from an article in Taxation by the appellant in Linington who had appeared in person – HMRC were represented by two counsel – that permission had been granted for an appeal against the decision Salinger which had initially been listed before the Upper Tribunal for 30 April 2018. However:

“ … just a few days before the hearing I was told that it had been postponed. It was rescheduled for November 2018 and a few days before the hearing date HMRC informed me that it was now no longer going to take place. HMRC refused to give a reason for this, stating taxpayers’ confidentiality. However, my understanding is that the Salinger family pulled out due to concerns about costs.”

It was similar concerns about costs in Linington that had led to the appellant acting in person in that case. She explained in the Taxation article, that she was “very mindful of the fact that even if we won at an FTT then HMRC would be likely to appeal and that we might have to pull out of a Upper Tribunal if there were any risks of incurring HMRC’s costs.” (See Bridget Jones, ‘A most uneven fight: me v HMRC’ (2023) Volume 191 (Issue 4487), Taxation, 11 May 2023)

Although there is no indication in the article that concerns about costs had any bearing on the agreement of the parties that Judge Brown should reach her own decision without reference to Salinger, that agreement is enough, in my judgment, to distinguish Linington from the other authorities, particularly Gilchrist v HMRC [2014] UKUT 169 (TCC) which was cited by Judge Brown in Linnington.

Mr Elliott described Gilchrist, a decision of the Upper Tribunal, as being “still the binding authority, the latest word on judicial comity.” Mr Margolin also accepts that the position under Gilchrist is that a tribunal should as a matter of comity follow a prior decision unless satisfied that it is wrong. I agree.

Therefore, given the clear and obvious similarity between the almost identical statutory provisions considered in Panayi and those in the present case, I should follow Panayi unless I consider it to have been wrongly decided.

Mr Margolin contends that Panayi was wrongly decided. In essence this is because of the failure by Judge Mosedale to consider the principle of legal certainty, a principle which includes the protection of legitimate expectations and concerns issues relating to retroactivity. It was distilled by Professor Tridimus as expressing “the fundamental premise that those subject to the law must know what the law is so as to be able to plan their actions accordingly” (The General Principles of EU Law (2nd ed., 2006), p. 242).

While Judge Mosedale clearly did have regard to the retrospective effect of a conforming interpretation (see paragraph 40, above) it does appear that, given the rapid realisation of the assets concerned before the date payment of the tax was due, the question of legitimate expectation did not arise in Panayi.

However, as is clear from my further findings of fact, Redevco has not established that the migration would not have happened if the advice it received from leading counsel had been different or less positive. Moreover, even if that was not the case, although there is no mention of a conforming construction in the advice, counsel considered (at paragraph 7 of the Note of Conference) that the most likely response compatible with EU law “might be to have a ‘trailing’ exit charge which would tax a company, which had ceased to be resident, on disposals of UK assets within a period of 3-5 years, at most 6, years after migration, based on the market value at migration.” As Redevco disposed of its properties within such a period I am unable to conclude that it had any reasonable legitimate expectation that it would not have to pay the tax concerned.

I therefore do not consider it appropriate to distinguish Panayi, or indeed consider it to have been wrongly decided, on the basis that it did not deal with legitimate expectation. As such, Panayi was not, in my judgment, wrongly decided but, as the Upper Tribunal observed in Banks, consistent with the jurisprudence of the CJEU.

I would also add that the argument advanced by Mr Margolin in relation to legal certainty bore more than a passing resemblance to that raised by the appellant in Vodafone 2 v HMRC [2010] Ch 77. This was dealt with by the Chancellor, Sir Andrew Morritt, at [58] who held that the conforming interpretation advanced by HMRC in that case reflected and excepted from the legislation concerned (in relation to CFCs):

“58.

… precisely that element of it which the Court of Justice held to constitute the hindrance to freedom of establishment. That is, by definition, sufficiently certain for a conforming interpretation whether or not the exclusion from the exception of wholly artificial transactions is included. There can be no objection to such an exclusion for the like reason. It follows precisely the formulation of the justification for the hindrance which the Court of Justice found to be acceptable.”

59.

It is the case that there are likely to be other ways of achieving conformity, for example section 751A inserted into the CFC legislation by paragraph 5 of Schedule 15 to the Finance Act 2007, and the choice of one rather than another may well involve policy decisions. But if that consideration alone could render a conforming interpretation illegitimate it would considerably restrict the occasions in which a conforming interpretation could be adopted and lead to an increase in disapplications. The choice of a conforming interpretation which faithfully follows a conclusion of the Court of Justice, as in this case, does not in my view trespass on the forbidden ground of legislation.

For the same reasons I consider a conforming construction to be appropriate in the present case and have no hesitation in following Panayi. I gratefully adopt Judge Mosedale’s reasoning in relation to s 49B TMA which is equally applicable to s 49D TMA in the present case. Accordingly, a conforming construction should be applied to s 49D TMA which is to be read as follows:

Given my conclusions and adoption of Judge Mosedale’s decision in Panayi in relation to conforming construction it is not necessary for me to consider the question of disapplication.

Therefore, for the reasons above, the appeal is allowed in respect of the balancing charge (see paragraph 21(11), above) but is otherwise dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.