The Trustees of the Panico Panayi Accumulation and Maintenance Settlements Numbers 1 to 4 & Anor v The Commissioners for HMRC
[2024] UKUT 319 (TCC)
Redevco Properties UK 1 Limited v The Commissioners for HMRC
21 July 2023
[2023] UKFTT 655 (TC)
First-tier Tribunal
A company moved its business from the UK to the Netherlands. The UK government tried to charge it a big tax bill immediately. The court said the law was unfair, but instead of cancelling the tax, it let the company pay in smaller amounts over five years.
Key Facts
- •Redevco Properties UK 1 Limited (Redevco) ceased to be UK resident for corporation tax purposes on January 15, 2008, becoming resident in the Netherlands.
- •This triggered the 'Exit Charge Provisions' (s 185 TCGA 1992 and para 10A of Schedule 9 to Finance Act 1996), resulting in a deemed disposal and reacquisition of assets, leading to a large tax liability.
- •The Exit Charge Provisions were incompatible with EU law due to the lack of a deferral option for tax payment.
- •Redevco argued that the incompatible provisions should be disapplied, while HMRC proposed a conforming construction allowing payment over five years.
- •Redevco's migration was primarily for commercial reasons, but tax advantages also played a role.
- •The Tribunal considered evidence from witnesses and contemporaneous documents, acknowledging inconsistencies between them.
Legal Principles
Freedom of establishment under Article 49 TFEU
Treaty on the Functioning of the European Union
Conforming construction of domestic legislation to comply with EU law
Case law (Vodafone II, Wilkinson v Churchill Insurance Co Ltd, Panayi)
Restrictions on conforming construction: must 'go with the grain' of legislation; cannot contradict fundamental features; court cannot make policy decisions with far-reaching consequences.
Case law (Panayi, Gallaher Limited v HMRC)
Judicial comity: following prior decisions unless convinced they are wrong
Case law (Gilchrist v HMRC)
Legal certainty, including protection of legitimate expectations and concerns about retroactivity
Various legal principles discussed within the judgment
Deemed disposal and reacquisition of assets upon cessation of UK residency for corporation tax purposes
Taxation of Chargeable Gains Act 1992 (TCGA) s.185
Deemed assignment and reacquisition of loan relationships upon cessation of UK residency for corporation tax purposes
Finance Act 1996, Schedule 9, para 10A
General rule for corporation tax due date
Taxes Management Act 1970 (TMA) s. 59D
Outcomes
Appeal allowed in part
A conforming construction was applied to s 59D TMA, allowing payment of the corporation tax in five equal annual installments. The balancing charges were deemed unlawful.
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