“…being unworkable, or if not workable to a result that Parliament could not have intended, then it can be concluded that an intention contrary to the application of the Interpretation Act appears and that it is not to be so construed.”
“The effect of these cumulative definitions is that for the purpose of deciding whether a person 'shall be taken to have control of a company' under s 416(2) [ICTA], it may be necessary to attribute to him the rights and powers of persons over whom he may in real life have little or no power of control. Plainly the intention of the legislature was to spread the net very wide.” 21. Mr Goy contends that it is apparent from s 416(2) TCGA that “control” can be deemed to exist without actual control and does not presuppose the ownership of rights in a company at all. He argues that it is illogical to accept that s 416(2) TCGA can apply even though there is no ownership of rights and says that s 416(6) TCGA should not apply on a like ground. However, Mr Prosser’s response is to say that this type of control, where a person with no interest in a company instructs a person with such an interest pursuant to an agreement in accordance with his wishes, either did not occur to Parliament or that it was thought that such a scenario would never or hardly ever occur in practice. He referred to the one case in which this type of control has been considered where the Court of Appeal had held that, on the facts, there was no such control (see Deutsche Bank Group Services (UK) Limited v HMRC [2014] STC at [102]). 22. Returning to s 416(6) TCGA, Mr Goy accepts that its application could be said to have a wider application than necessary but this, he says, is not uncommon with anti-avoidance legislation and commended the approach of Morritt LJ in Steele (Inspector of Taxes) v EVC International NV (formerly European Vinyls Corp (Holdings) BV) [ 1996] STC 785, where he said, at 796, referring to an argument of counsel for the taxpayer: “… that if the Crown is right on this issue then it will have the unforeseen and unwelcome consequence that the consortium relief made available bys 402 of the Income and Corporation Taxes Act 1988 will be withheld by s 410(2)(iii) in just those circumstances in which it is to be presumed that Parliament intended it to be available. This was not disputed by counsel for the Crown. He informed us that the Crown has had the point in mind since it first emerged in the judgment of Lightman J and will consider what to do about it if this appeal is dismissed. But he also observed, in my view rightly, that s 410 was an anti-avoidance provision which like many other such provisions sometimes covers a wider area than that strictly necessary to achieve its object.” 23. Mr Goy also cautions against reliance on the use of such examples such as that of S, above, citing Chadwick LJ in Foulser and another v MacDougall (Inspector of Taxes)[2007] STC 973 at [64]: “We were pressed in the course of the hearing with an elaborate argument—advanced for the first time in a supplemental skeleton argument dated12 October 2006 —based on examples which, it is said, demonstrate that, as a matter of policy, it could not have been the intention of the legislature that s 286(7) TCGA 1992—or s 839(7) ICTA 1988—should (in the absence of some provision as those in s 177(7) TCGA 1992 or s 736(4) ICTA 1988) have any independent application. I hope it will not be thought discourteous—or lacking in respect to the ingenuity with which that argument was formulated and advanced—if I do no more than draw attention to the observation of Morritt LJ, when faced with a similar argument in Steele v EVC[1996] STC 785 at 796). He pointed out that the fact that the Revenue's construction of s 839(7) ICTA 1988 might have unforeseen and unwelcome consequences—in that case, the denial of consortium relief made available by s 402 ICTA 1988 by the operation of s 410(2)(iii) in just those circumstances in which it was to be presumed that Parliament intended it to be available—was no reason for not construing s 839(7) ICTA 1988 in accordance with its terms. In my view the effect of s 286(7) TCGA 1992, in relation to the enquiry required under s 167(2)(b), is clear. I am not persuaded that the Court should refuse to give to the section the effect which, as a matter of construction, it was plainly intended to have in that context on the basis that, in other contexts, the section might be found to have unforeseen or unwelcome consequences.” 24. Mr Prosser, however, contends that HMRC’s reliance on Steele v EVC and Foulser v MacDougall is misplaced as a plain and ordinary construction of a statutory provision (s 286 TCGA) cannot be rejected just because to do so may produce anomalies in other contexts, ie other statutory provisions (eg s 402 ICTA) which apply the first provision, and not in other factual situations governed by the first statutory provision. The present case, he says, concerns the construction of “control” in the context of s 167 TCGA which under s 288 TCGA is not to be construed in accordance with s 416 ICTA if that context otherwise requires. Accordingly, it is therefore legitimate, and Mr Prosser submits necessary, to consider whether in the context of s 167 TCGA construing it in accordance with s 416(6) will produce injustice and absurdity. 25. In addition to the above “S” example, Mr Prosser relies on the relationship between s 166(1) and (2) and s 167(2) and (3) TCGA. Sections 166(1) and (2) TCGA provide that hold-over relief is not available when the transferee is non-UK resident or treated as such by virtue of any double taxation treaty. However, it is necessary for s 166(2) TCGA to refer to the asset as it is necessary to consider whether as a result of the treaty that person will not be liable to tax on the disposal of the asset. Similarly, he says, s 167(3) TCGA is making explicit what is implicit in s 167(2) TCGA, namely by focusing on real as opposed to fictional control of the company. 26. Mr Goy contends that the reference to control by virtue of the holding of assets 167(3) TCGA can be clearly contrasted with s 167(2) TCGA in which such a requirement is absent. This, he says, is a clear example that where Parliament intended to limit the general definition of control it has done so. He also relies on s 96(10) TCGA, which in contrast to s 167 TCGA, expressly excludes s 416(6) ICTA. 27. Section 96(10) TCGA provides: … the question of whether a company is controlled by a person or persons shall be construed in accordance with section 416 of [ICTA], but in deciding that question for those purposes no rights or powers of (or attributed to) an associate or associates of a person shall be attributed to him under s 416(6) if he is not a participator in the company. Mr Goy submits that as Parliament has sought to limit the definition of control in s 96(10) and 167(3) TCGA but not in s 167(2) TCGA, the obvious conclusion is that this was deliberate and Parliament did not intend that control, for the purposes of s 167(2) TCGA, should be given the restricted interpretation advance on behalf of Mr Reeves. 28. However, Mr Prosser says that the effect of s 416(6) on s 167(2) TCGA was overlooked by Parliament and this is apparent from answers given to the Standing Committee considering the provisions of 1991 Finance Bill given by Mr Maude, on13 June 1991 , who said: “The provisions … deal with payments by trustees to a company under a beneficiary’s control, and to a beneficiary by a company under a trustee’s control. The provisions strengthen the existing charge in an increasingly important area of the law. The definition of control for the provisions is the same as that which is adopted for income tax purposes [ie s 416 ICTA]. It provides that only can a person’s own rights and powers be taken into account in determining whether or not he or she controls the company, but also those of any associates. That term includes a person’s relatives and the trustees of the settlement if which he or she is the settlor or beneficiary. We have received representations to the effect this could result in payments by trustees being attributed for tax purposes to individuals who have no interest in the company. That would go wider than we intended, and therefore the amendment limits the definition of “control” so that only those who have an interest in the company will fall within the provisions.” 29. Mr Prosser submits that if Parliament was unaware of the effect of s 416(6) ICTA in 1991 it was clearly not aware of it in 1989 when what is now s 167 TCGA came into force (originally ass 126B of the Capital Gains Tax Act 1989 ). As he put it, “it is not as if there was a sort of corporate forgetting between 1989 and 1991.”
“26. Section 3 is a key section in theHuman Rights Act 1998 . It is one of the primary means by which Convention rights are brought into the law of this country. Parliament has decreed that all legislation, existing and future, shall be interpreted in a particular way. All legislation must be read and given effect to in a way which is compatible with the Convention rights 'so far as it is possible to do so'. This is the intention of Parliament, expressed in section 3, and the courts must give effect to this intention.”
“47. But we would add that, even if HMRC had not accepted that, we would have held that upholding the assessments would deprive Mr Fessal of a “possession”
“It would be different if the appellants had been challenging the imposition of SDLT itself”. 49. A similar distinction arises in relation to the Walapu case. The facts in that case were that the taxpayer challenged, on (inter alia) the grounds of the A1P1, an obligation to pay a disputed amount of tax under an “accelerated payment notice”
“… identified the "fair balance" principle: in securing the payment of taxes a national authority must strike a fair balance between the general interests of the community and the protection of the individual's fundamental rights, including the right to possessions in Article 1. In that balancing exercise the national authority has a margin of appreciation under the Convention and a discretionary area of judgment under domestic law. The area of appreciation and judgment is wide in matters of social and economic policy.”
“82. Tax legislation in itself can be a legitimate aim in the public interest because the collection of taxes is of clear public benefit and is therefore granted 'additional deference and latitude': see NKM v Hungary[2013] STC 1104 (at para 50). At paras 56–57, the ECtHR said: '56. The court further reiterates that the levying of taxes constitutes in principle an interference with the right guaranteed by [A1P1] and that such interference may be justified under the second paragraph of that article, which expressly provides for an exception in respect of the payment of taxes or other contributions. However, this issue is nonetheless within the court's control … 57. … it is naturally in the first place for the national authorities to decide what kind of taxes or contributions are to be collected. The decisions in this area will commonly involve the appreciation of political, economic and social questions which the Convention leaves within the competence of the states parties, the domestic authorities being better placed than the court in this connection.' 83. Given this wide margin of appreciation in relation to tax legislation, in order for the ITTOIA to amount to a breach of an ECHR right, the interference with that right must be 'devoid of reasonable foundation': see Gasus and National & Provincial Building Society v UK[1997] STC 1466 , 25 EHRR 127 (esp at para 80). 84. The interference could be justified if it satisfied the following three tests (apparently articulated to define 'manifestly devoid of reasonable basis') in NKM ([2013] STC 1104 at paras 48, 59 and 60): (i) the legislation must be sufficiently accessible, precise and foreseeable in its application; (ii) the legislation must pursue a legitimate aim in the public interest; and (iii) the interference with the right to peaceful enjoyment must be proportionate in the sense that it strikes a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights. She went to say, at [89]: (i) and (ii) of the NKM test however carry less weight in the determination of a breach of A1P1 if the test in favour of proportionality fails. It was said in NKM[2013] STC 1104 at para 60: 'Even if [the interference with A1P1] has taken place subject to the conditions provided for by law—implying the absence of arbitrariness—and in the public interest, an interference with the right to the peaceful enjoyment of possessions must always strike a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights. In particular, there must be a reasonable relationship of proportionality between the means employed and the aim sought to be realised by the impugned measure.'” 63. In the particular case of Mr Reeves, Mr Goy refers to him having originally owned a chargeable asset within the ambit of CGT and, by enveloping it within a company, he seeks to avoid the charge to CGT that would otherwise arise in respect of his interest in BlueCrest on ceasing to be UK resident. Additionally, he faces no liability to CGT on selling the shares in the company. In such circumstances, Mr Goy says, if the provisions in question apply to Mr Reeves because of his wife’s non-UK resident status, they will have operated to prevent him from converting a chargeable asset into a non-chargeable asset thus avoiding CGT. Therefore, he submits, it cannot be said that the provisions have no reasonable foundation in their impact on Mr Reeves as they preserve the integrity of the UK tax base. 64. Mr Prosser, on the other hand, contends that s 167 TCGA has no rational foundation. However wide the margin of appreciation, he says, it would be just as irrational to deny hold-over relief to Mr Reeves by treating Mrs Reeves as having control of WHR as it would be to deny relief by treating their children as having control. Relying on the obiter comments of Proudman J in Lobler he contends that the application of s 416(6) ICTA to s 167 TCGA is devoid of reasonable foundation if it does not have a legitimate aim or is not proportionate. 65. I should also mention, as is clear from the observation of Barling J in Allan v HMRC[2015] STC 890 at [40] that: … the hurdle for those alleging infringement of A1P1, particularly in the context of taxation provisions, has understandably been described as 'very high' (see, for example, para [60] of the recent judgment of Andrews J in R (on the application of St Matthews (West) Ltd) v HM Treasury[2014] EWHC 1848 (Admin) ,[2014] STC 2350 ). Tax measures are seen as entitled to particular deference in the light of the second para of A1P1 itself. Indeed counsel were only able to point to two decisions of the European Court of Human Rights in which the court has held that the wide margin of appreciation in respect of such a measure has been exceeded so as to result in an infringement of A1P1.” 66. Barling J continued to briefly describe the main features of these two decisions: “41. In R.Sz. v Hungary[2013] ECHR 41838 /11 , the applicant was paid benefits to which he was entitled on the termination of his employment, and was taxed on those benefits at the rate then applicable. Some time later, without any forewarning or transitional provisions, the applicable rate of tax was increased with retrospective effect to 98%, and an additional tax charge was imposed on the applicant. In holding that the measure entailed an 'excessive and individual burden' the court emphasised that it was targeted only at a specific group, namely those paid from the public purse, while all others—the majority—were exempt. Further, the applicant had received the benefits (less the then applicable tax) some time in advance of the relevant tax change and additional levy, which amounted to almost total deprivation. The lack of warning and of any transitional provision to enable him to adjust, were said to be liable to have caused considerable personal hardship. 42. Hentrich v France(1994) 18 EHRR 440 , [1994] ECHR 13616/88 concerned a right of compulsory purchase of land by the state which, as the Court of Human Rights found, 'operated arbitrarily and selectively and was scarcely foreseeable, and … was not attended by the basic procedural safeguards.' In effect, where any real estate had been purchased the state could exercise the power of pre-emption without the original purchaser having the right to make submissions to a court as to whether the price he or she had paid for the land was too low or as to whether he had bought it in good faith. The pre-emption right was applied rarely and arbitrarily 'for the sole purpose of warning others against any temptation to evade taxes.' As such the applicant 'as a selected victim of the exercise of the right of pre-emption …' bore an individual and excessive burden 'which could have been rendered legitimate only if she had had the possibility … of … challenging the measure taken against her …' 43. On any view these two cases involved extreme circumstances: in Hungary there was an unsignalled, retrospective, and discriminatory tax charge amounting to almost total deprivation of benefits designed to serve a social purpose, namely to protect an employee on the termination of his or her employment. In Hentrich the state had arbitrarily exercised a rarely-used right of pre-emption to deprive the applicant of land she had purchased, in circumstances where she had no effective recourse to legal challenge. It is interesting to note that notwithstanding the 'individual and excessive burden' which the applicant was held to have borne as a 'selected victim of the exercise of the right of pre-emption', the measure would still have been within the margin of discretion available to the state if the applicant had had an effective means of challenging it.” 67. I am somewhat sympathetic to Mr Prosser’s argument that it is irrational to deny relief to Mr Reeves because Mrs Reeves and their children are treated under s 167 TCGA, by virtue of s 416(6) ICTA, of having control of WHA, especially given HMRC’s failure to engage with the position of the children. However, given the “high hurdle” in Allan and the wide margin of appreciation identified by Barling J in that case and Proudman J in Lobler , as Mr Reeves has had an effective means of challenging it, I am unable to conclude that the legislation complained of, s 167 TCGA, is devoid of reasonable foundation amounting to a breach of his rights under A1P1 ECHR.Article 14 ECHR , ‘Prohibition of discrimination’, 68.Article 14 ECHR provides: The enjoyment of the right and freedoms set forth in this Convention shall be secure without discrimination in any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, associations with a national minority, property, birth or other status. 69. Article 14 was considered by the House of Lords in AL (Serbia) v Secretary of State for the Home Department [2008] 1 WLR where Baroness Hale said: “21. First, as was said in Abdulaziz, Cabales and Balkandali v United Kingdom(1985) 7 EHRR 471 , para 71: “Article 14 complements the other substantive provisions of the Convention and the Protocols. It has no independent existence since it has effect solely in relation to ‘the enjoyment of the rights and freedoms’ safeguarded by those provisions. Although the application of article 14 does not necessarily presuppose a breach of those provisions—and to this extent it is autonomous—there can be no room for its application unless the facts at issue fall within the ambit of one or more of the latter.” … 22. Secondly, as the court first explained in the Belgian Linguistic Case (No 2)(1968) 1 EHRR 252 , 284, para 10: “In spite of the very general wording of the French version (‘sans distinction aucune’), article 14 does not forbid every difference in treatment in the exercise of the rights and freedoms recognised … The competent national authorities are frequently confronted with situations and problems which, on account of the differences inherent therein, call for different legal solutions; moreover certain legal inequalities tend only to correct factual inequalities.”
“A difference of treatment is, however, discriminatory if it has no objective and reasonable justification; in other words, if it does not pursue a legitimate aim or if there is not a reasonable relationship of proportionality between the means employed and the aim sought to be realised. The contracting state enjoys a margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify a different treatment.” 70. The discrimination alleged in the present case is that Mr Reeves has been denied hold-over relief under s 165 TCGA because he has non-UK resident relatives, namely his wife and children. Mr Prosser contends that discrimination exists because if Mr Reeves did not have a wife (or children) or did not have a non-UK resident wife (or children) he would be entitled to claim hold-over relief and that he is being discriminated against because he does. Such discrimination, he says, cannot be justified. 71. Mr Goy contends that, when considering the position of Mr Reeves there is no discrimination as had he been a UK resident with a non-resident wife he would have been treated exactly the same. He further contends, relying on Stec v United Kingdom (as cited by Baroness Hale), that even if there was a difference in treatment because a non-UK resident person such as Mr Reeves is more likely to have a non-UK resident wife than someone who is resident in the UK, the attribution of powers under s 416(6) ICTA precluding a possible method of avoiding tax be removing assets outside the ambit of CGT has an objective and reasonable justification, namely to protect the integrity of the UK tax system and is therefore not discriminatory. 72. Although, as previously, Mr Goy did not engage with the question of the non-UK resident children I agree with him that Mr Reeves has not been treated differently to any other person with a non-UK resident wife and children and therefore has not been subject to any discrimination. EU law arguments 73. Unders 2 of the European Communities Act 1972 and article 4(3) of the Treaty on the Functioning of the European Union (“TFEU”) UK legislation, whenever enacted, is to be interpreted in conformity with directly effective EU law. Arguments on EU law were advanced by Mr David Yates, on behalf of Mr Reeves, and for HMRC by Ms Sarah Abrams. I am grateful to them both for their clear and succinct submissions. 74. In essence, Mr Yates contends that a literal construction of s 167(2) TCGA would breach the right to free movement of capital and that an EU compliant construction, which does not go against the grain or any cardinal feature of the legislation, should be adopted. 75. Ms Abram says that if any free movement right under the TFEU is engaged it is the freedom of establishment rather than free movement of capital. However, if it is the free movement of capital that is engaged she contends that s 167(2) TCGA falls within the exception in article 64(1) TFEU. Ms Abram further submits that s 167(2) TCGA does not in any event restrict the free movement of capital but that even if it did it is a justified and proportionate measure. 76. It is therefore necessary to consider, first, which freedom under the Treaty on the Functioning of the European Union (“TFEU”) is applicable, free movement of capital or freedom of establishment; secondly, whether the exception in article 64(1) TFEU is engaged; thirdly, whether, s 167(2) does, in fact, restrict the free movement of capital; and finally if it does whether it is nevertheless justified and proportionate. It is common ground that Mr Reeves has to succeed on all of these issues for his appeal to be allowed. 77. Before turning to these issues it is convenient to first set out the relevant articles of the TFEU (insofar as applicable to the present case): Article 63 (ex Article 56 TEC) 1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited. 2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. Article 64 (ex Article 57 TEC) 1. The provisions of Article 63 shall be without prejudice to the application to third countries of any restrictions which exist on31 December 1993 under national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment – including in real estate – establishment, the provision of financial services or the admission of securities to capital markets. In respect of restrictions existing under national law in Bulgaria, Estonia and Hungary, the relevant date shall be31 December 1999 . 2. Whilst endeavouring to achieve the objective of free movement of capital between Member States and third countries to the greatest extent possible and without prejudice to the other Chapters of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt the measures on the movement of capital to or from third countries involving direct investment – including investment in real estate – establishment, the provision of financial services or the admission of securities to capital markets. … 78. Additionally, the relevant parts of the Council Directive of24 June 1988 (88/361/EEC) provide: Article 1 1. Without prejudice to the following provisions, Member States shall abolish restrictions on movements of capital taking place between persons resident in Member States. To facilitate application of this Directive, capital movements shall be classified in accordance with the Nomenclature in Annex I. … ANNEX I NOMENCLATURE OF THE CAPITAL MOVEMENT REFERRED TO IN ARTICLE 1 OF THE DIRECTIVE In this Nomenclature, capital movements are classified according to the economic nature of the assets and liabilities they concern, denominated in either national currency or in foreign exchange. The capital movements listed in this Nomenclature are taken to cover: — … — operations to liquidate or assign assets built up, repatriation of the proceeds of liquidation thereof or immediate use of such proceeds within the limits of Community obligations. … I — DIRECT INVESTMENTS 1. Establishment and extension of branches or new undertakings belonging solely to the person providing the capital, and the acquisition in full of existing undertakings. 2. Participation in new or existing undertaking with a view to establishing or maintaining lasting economic links. … XI — PERSONAL CAPITAL MOVEMENTS A — Loans B — Gifts and endowments C — Dowries D — Inheritance and legacies … EXPLANATORY NOTES For the purposes of this Nomenclature and the Directive only, the following expressions have the meanings assigned to them respectively: Direct investments Investments of all kinds by natural persons or commercial, industrial or financial undertakings, and which serve to establish or to maintain lasting and direct links between the person providing the capital and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity. This concept must therefore be understood in its widest sense. The undertakings mentioned under I-1 of the Nomenclature include legally independent undertakings (wholly-owned subsidiaries) and branches. As regards those undertakings mentioned under I-2 of the Nomenclature which have the status of companies limited by shares, there is participation in the nature of direct investment where the block of shares held by a natural person of another undertaking or any other holder enables the shareholder, either pursuant to the provisions of national laws relating to companies limited by shares or otherwise, to participate effectively in the management of the company or in its control. Long-term loans of a participating nature, mentioned under I-3 of the Nomenclature, means loans for a period of more than five years which are made for the purpose of establishing or maintaining lasting economic links. The main examples which may be cited are loans granted by a company to its subsidiaries or to companies in which it has a share and loans linked with a profit-sharing arrangement. Loans granted by financial institutions with a view to establishing or maintaining lasting economic links are also included under this heading. Which TFEU freedom applies 79. Unlike free movement of capital, under article 63 which applies to third countries freedom of establishment is only applicable to of EU Member States as article 49 TFEU makes clear. This provides: Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital. 80. In DMC Beteiligungsgesellschaft mbH v Finanzamt Hamburg-Mitte (Case C-164/12 )[2014] STC 1345 the Court of Justice of the European Union (“CJEU”) [1] considered the position in which two Austrian limited partners in a limited partnership established in Germany transferred their interests to a general partner, a German company, receiving shares in the capital of the German general partner in return. The general partner then dissolved the limited partnership which, as a result, no longer had an establishment in Germany. Under German law that transaction and the loss of a permanent establishment in Germany meant that the gains from the issue of the shares could not be taxed and as a result under German tax law the transfers to the general partner were subject to tax at their going concern rather than their book value. 81. Although on its facts all interested parties that submitted observations, as well as the referring court, accepted that on its facts the case “may be linked to the freedom of establishment, the CJEU in its judgment stated: “29. As regards the question whether national legislation falls within the scope of one or other of the freedoms of movement, according to well established case-law, it is the purpose of the legislation concerned that must be taken into consideration (see Case C157/05 Holböck[2007] ECR I-4051 , paragraph 22, andCase C-182/08 Glaxo Wellcome[2009] ECR I-8591 , paragraph 36). 30 . It is also clear from the case-law that the Court will in principle examine the measure in dispute in relation to only one of those two freedoms if it appears, in the circumstances of the main proceedings, that one of them is entirely secondary in relation to the other and may be considered together with it (Case C-452/04 Fidium Finanz[2006] ECR I-9521 , paragraph 34, and Glaxo Wellcome , paragraph 37). 31 . The Court has held that national legislation not intended to apply only to those shareholdings which enable the holder to exert a definite influence on a company’s decisions and to determine its activities but which applies irrespective of the size of the holding which the shareholder has in a company may fall within the scope of both Article 49 TFEU and Article 63 TFEU (Case C-543/08 Commission v Portugal[2010] ECR I-11241 , paragraph 43 and the case-law cited). 32 . As regards the purpose of the provisions of the UmwStG 1995 at issue in the main proceedings, it is apparent from the order for reference that they are intended to protect the fiscal interests of the Federal Republic of Germany in relation to capital gains generated in Germany territory where the international allocation of the right to impose taxes may undermine those interests. 33 . In particular, the legislation in question is directed at capital gains on assets contributed by investors who are no longer subject to tax in Germany on gains arising as a result of the transfer of such assets from a limited partnership to a capital company. 34 . It follows from this, first, that the application of the legislation at issue in the main proceedings to an individual case is not dependent on the extent of an investor’s interest in the limited partnership whose share in the partnership is transferred to a capital company in return for company shares. Thus, under that legislation, the investor is not required to have a holding which enables him to exert a definite influence on the partnership’s decisions, or indeed those of the capital company. 35 . Indeed, to restrict the application of the legislation at issue in the main proceedings to cases in which the interest in the limited partnership that is transferred is held by an investor with a definite influence on the decisions of the partnership would be inconsistent in the light of the objective of protecting the fiscal interests of the Federal Republic of Germany. 36 . Second, it is clear that, in the main proceedings, the obligation which the capital company is under to assess the assets contributed in return for shares at their value as part of a going concern is justified by the fact that the transferring companies are no longer subject to unlimited liability to tax in Germany in respect of gains accrued there, since the partnership in which they were limited partners has been dissolved. 37 . Accordingly, the legislation at issue in the main proceedings has less bearing on the procedure for establishment than on the procedure for the transfer of assets between a limited partnership and a capital company. 38 . It follows from all the foregoing considerations that the legislation at issue in the main proceedings must be examined solely in the light of free movement of capital, enshrined in Article 63 TFEU.” 82. The CJEU stated, in Test Claimants in the FII Group Litigation v HMRC (No 3) (Case C-35/11 )[2013] Ch 341 that: “96. … in a context such as that at issue in the main proceedings which relates to the tax treatment of dividends originating in a third country, it is sufficient to examine the purpose of national legislation in order to determine whether the tax treatment of such dividends falls within the scope of the Treaty provisions on the free movement of capital. 97. Since the chapter of the Treaty on freedom of establishment does not contain any provision which extends the application of its provisions to situations concerning the establishment of a company of a member state in a third country or the establishment of a company of a third country in a member state (see Holböck v Finanzamt Salzburg-Land (Case C-157/05 )[2007] ECR I-4051 , para 28; Fidium Finanz AG v Bundesanstalt fur Finanzdienstleistungsaufsicht (Case C-452/04 ) [2007] All ER (EC) 239;[2006] ECR I-9521 , para 25; the Scheunemann case, para 33; the order in Skatteverket v A and B (Case C-102/05 )[2007] ECR I-3871 , para 29; and the order in Test Claimants in the CFC and Dividend Group Litigation v Inland Revenue Comrs (Case C-201/05 )[2008] ECR I-2875 , para 88), legislation relating to the tax treatment of dividends originating in third countries is not capable of falling within the scope of article 49 TFEU. 98. Where it is apparent from the purpose of such national legislation that it can only apply to those shareholdings which enable the holder to exert a definite influence on the decisions of the company concerned and to determine its activities, neither article 49 TFEU nor article 63 TFEU may be relied upon: see Test Claimants in the Thin Cap Group Litigation v Inland Revenue Comrs (Case C-524/04 )[2007] ECR I-2107 , paras 33, 34, 101 and 102 and the order in Lasertec Gesellschaft fur Stanzformen mbH v Finanzamt Emmendingen (Case C-492/04 )[2007] ECR I-3775 , paras 22 and 27; see also the order in Skatteverket v A and B , paras 4, 25–28. 99. On the other hand, national rules relating to the tax treatment of dividends from a third country which do not apply exclusively to situations in which the parent company exercises decisive influence over the company paying the dividends must be assessed in the light of article 63 TFEU. A company resident in a member state may therefore rely on that provision in order to call into question the legality of such rules, irrespective of the size of its shareholding in the company paying dividends established in a third country: see Skatteverket v A (Case C-101/05 )[2007] ECR I-11531 , paras 11 and 27. 100. Since the Treaty does not extend freedom of establishment to third countries, it is important to ensure that the interpretation of article 63(1) TFEU as regards relations with third countries does not enable economic operators who do not fall within the limits of the territorial scope of freedom of establishment to profit from that freedom. Such a risk does not exist in a situation such as that at issue in the main proceedings. The legislation of the member state in question does not relate to the conditions for access of a company from that member state to the market in a third country or of a company from a third country to the market in that member state. It concerns only the tax treatment of dividends which derive from investments which their recipient has made in a company established in a third country. 101. It should be added that the line of argument of the United Kingdom, German, French and Netherlands Governments that the freedom applicable to the tax treatment of dividends originating in third countries depends not only on the purpose of the national legislation at issue in the main proceedings but also on the particular circumstances of the case in those proceedings would produce effects incompatible with article 64(1) TFEU. 102. It is apparent from that provision that article 63 TFEU on the free movement of capital covers, in principle, capital movements involving establishment or direct investment. The latter terms relate to a form of participation in an undertaking through the holding of shares which confers the possibility of effectively participating in its management and control: see Glaxo Wellcome GmbH & Co KG v Finanzamt München II (Case C-182/08 )[2009] ECR I-8591 , para 40 and Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis (Case C-81/09 )[2010] ECR I-10161 , para 48. 103. According to the case law, the restrictions on capital movements involving establishment or direct investment within the meaning of article 64(1) TFEU extend not only to national measures which, in their application to capital movements to or from third countries, restrict establishment or investment, but also to those which restrict payments of dividends deriving from them: see FII (No 1), para 183 and Holböck’s case, para 36.” 83. In Kronos International Inc v Finanzamt Leverkusan (Case C-47/12 )[2015] STC 351 the CJEU stated, under the sub-heading ‘The freedom at issue’: 29. It is apparent from the court's settled case law that the tax treatment of dividends may fall within art 49 TFEU on freedom of establishment and art 63 TFEU on the free movement of capital (judgments in Haribo Lakritzen Hans Riegel BetriebsgmbH v Finanzamt Linz (Joined cases C-436/08 and C-437/08)[2011] STC 917 ,[2011] ECR I-305 , para 33; Ministre du Budget, des Comptes publics et de la Fonction publique v Accor SA (Case C-310/09 )[2012] STC 438 ,[2011] ECR I-8115 , para 30; and Test Claimants in the FII Group Litigation v Revenue and Customs Comrs (Case C-35/11 )[2013] STC 612 ,[2013] Ch 431 , para 89). 30. As regards the question whether national legislation falls within the scope of one or other of the freedoms of movement, it is clear from well-established case law that the purpose of the legislation concerned must be taken into consideration (judgment in Test Claimants in the FII Group Litigation , para 90 and the case law cited). 31. National legislation intended to apply only to those shareholdings which enable the holder to exert a definite influence on a company's decisions and to determine its activities falls within the scope of art 49 TFEU on freedom of establishment (see judgments in Test Claimants in the FII Group Litigation , C-446/04, para 37; Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis (Case C-81/09 )[2010] ECR I-10161 , para 47; Accor , para 32; Scheunemann v Finanzamt Bremerhaven (Case C-31/11 )[2012] 3 CMLR 1228 , para 23; and Test Claimants in the FII Group Litigation , para 91). 32. On the other hand, national provisions which apply to shareholdings acquired solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking must be examined exclusively in light of the free movement of capital (judgments in Haribo Lakritzen Hans Riegel and Österreichische Salinen , para 35; Accor , para 32; Scheunemann , para 23; and Test Claimants in the FII Group Litigation , para 92). 33. In the main proceedings, it follows from the double taxation conventions concluded by the Federal Republic of Germany with the Kingdom of Denmark, the French Republic and—so far as concerns the 2001 tax year—Canada, and from application of para 8b(5) of the KStG 1994 in conjunction with the double taxation conventions concluded by the Federal Republic of Germany with the United Kingdom and with Canada, so far as concerns the 2000 tax year, that dividends paid to companies resident in Germany by companies resident in those other states are exempt from German corporation tax when the shareholding of the company receiving the dividend in the company distributing it reaches the threshold of 10%. 34. Such a threshold admittedly serves to exclude from the scope of the exemption shareholdings acquired solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking. 35. However, contrary to the German government's submissions, such a threshold does not in itself make the exemption applicable only to those shareholdings which enable the holder to exert a definite influence on a company's decisions and to determine its activities. The court has already held that a holding of such a size does not necessarily mean that the holder exerts a definite influence on the decisions of the company of which it is a shareholder (see, to this effect, judgment in Itelcar – Automoveis de Aluguer Lda v Fazenda Publica (Case C-282/12 )[2013] All ER (D) 114 (Oct), para 22). 36. Consequently, the national rules at issue in the main proceedings apply not only to dividends received by a resident company on the basis of a shareholding that confers definite influence over the decisions of the company distributing the dividends and enables its activities to be determined, but also to dividends received on the basis of a shareholding not conferring such influence. 37. In the case of legislation from whose purpose it cannot be determined whether it falls predominantly within the scope of art 49 TFEU or art 63 TFEU, the court has already held that, in so far as the national legislation relates to dividends which originate in a member state, account should be taken of the facts of the case in point in order to determine whether the situation to which the dispute in the main proceedings relates falls within the scope of art 49 TFEU or of art 63 TFEU (see, to this effect, judgments in Test Claimants in the FII Group Litigation , paras 93 and 94 and the case law cited; Beker v Finanzamt Heilbronn (Case C-168/11 )[2013] STC 1334 , paras 27 and 28; and Bouanich v Directeur des services fiscaux de la Drome (Case C-375/12 ) [2014] SWTI 1575, para 30). 38. As regards, on the other hand, the tax treatment of dividends originating in a third country, the court has held that it is sufficient to examine the purpose of national legislation in order to determine whether the tax treatment of such dividends falls within the scope of the provisions of the FEU Treaty on the free movement of capital, as national legislation relating to the tax treatment of dividends originating in third countries is not capable of falling within the scope of art 49 TFEU (see, to this effect, judgment in Test Claimants in the FII Group Litigation , paras 96 and 97). It went on to note: “53. … that the court has held that, since the Treaty does not extend freedom of establishment to third countries, it is important to ensure that the interpretation of art 63(1) TFEU as regards relations with third countries does not enable economic operators who do not fall within the limits of the territorial scope of freedom of establishment to profit from that freedom (judgment in Test Claimants in the FII Group Litigation , para 100). 54. However, as the Advocate General has, in essence, observed in point 64 of his opinion, such a risk does not exist in a situation such as that at issue in the main proceedings. The German rules do not relate to the conditions for access of a company from that member state to the market in a third country or of a company from a third country to the market in that member state. Those rules concern only the tax treatment of dividends which derive from investments made by the recipient of the dividends in a company resident in another member state or in a third country.” 84. Mr Yates relies on DMC and Glaxo Wellcome GmbH & Co KG v Finanzamt München II , to which the CJEU referred in DMC (at [29] of its decision, see paragraph 81, above) to contend that it is the free movement of capital rather than freedom of establishment that is engaged. Ms Abram referred to the decision of the CJEU in Marianne Scheunemann v Finanzamt Bremerhaven (Case-31/11) [2012] EUECJ C-31/11 where the Court stated: “30 It should therefore be held that the legislation at issue in the main proceedings primarily affects freedom of establishment and that, in accordance with the case-law of the Court, it falls solely within the scope of the Treaty provisions concerning that freedom. If it were to be found that such a national measure has restrictive effects on the free movement of capital, those effects would have to be seen as an unavoidable consequence of a restriction on freedom of establishment and would not justify an independent examination of that measure in the light of the Treaty provisions on the free movement of capital (see, to that effect,Case C-464/05 Geurts and Vogten[2007] ECR I-9325 , paragraph 16 and the case-law cited). 31 In any event, as regards the facts in the case before the referring court, it is established that the testator had a 100% holding in the capital of the company concerned and, accordingly, it cannot be denied that he was able to exert a definite influence over its decisions and to determine its activities.” 85. Although she accepts that s 167 TCGA could apply to both freedoms Ms Abram contends that, on the basis of Scheunemann , it is possible to consider the facts of the case to determine which freedom applies. In the present case Mr Reeves established himself in the UK as a partner in BlueCrest to carry out his trade, which she says, is a paradigm example of the exercise of freedom of establishment. As a secondary part of that activity he moved assets to WHL and in doing so was able to continue to exercise the same trade or profession as before albeit through the “wrapper” of a company, WHL. Accordingly, she submits, the applicable freedom is the freedom of establishment. 86. However, as is clear from Mr Goy’s description of s 167(2) TCGA as an anti-avoidance provision preventing a UK resident person being able to give chargeable assets to a UK resident company owned by a non-resident connected person who could then sell his interest free from CGT (see paragraph 11, above), the legislation in dispute in the present case, like that in DMC , has less bearing on the procedure for establishment than on the procedure for the transfer of assets. In DMC it was between a limited partnership and a capital company and in the present case and individual, Mr Reeves, and a company, WHL. 87. As in DMC it follows that the legislation at issue must be examined solely in the light of free movement of capital, enshrined in Article 63 TFEU. Article 64 TFEU 88. It is clear from Yvon Velte v Finanzant Velbert (Case C-181/12 ) [2013] EUECJ C-181/12 , at [29] and [36], that article 64 TFEU (see paragraph 77, above), as a derogation from the free movement of capital, is to be interpreted strictly. However, it is common ground that the relevant restriction to hold-over relief, s 167(2) TCGA has been in place since at least31 December 1993 and that it applies to third countries, ie to those resident anywhere outside the UK. The issue between the parties is whether s 167(2) TCGA relates to “direct investments”. 89. Although not defined in the TFEU “direct investments” are included in the Nomenclature in Annex I to Council Directive 88/361/EEC (see paragraph 78, above). This has been recognised by the CJEU as having an indicative value for the purposes of defining the notion of capital movements (see eg Trummer and Mayer[1999] ECR I-1661 at [20] – [21]). Paragraph 2 of the Nomenclature section on the subject states that direct investments includes: Participation in new or existing undertaking with a view to establishing or maintaining lasting economic links. 90. It is clear from the Explanatory Note to the Directive that the concept of direct investments must be understood in its “widest sense” and that it covers: Investments of all kinds by natural persons or commercial, industrial or financial undertakings, and which serve to establish or to maintain lasting and direct links between the person providing the capital and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity. The Explanatory Note continues with regard to: … companies limited by shares, there is participation in the nature of direct investment where the block of shares held by a natural person of another undertaking or any other holder enables the shareholder, either pursuant to the provisions of national laws relating to companies limited by shares or otherwise, to participate effectively in the management of the company or in its control. 91. In Holböck v Finanzamt Salzburg-Land (Case C-156/05 )[2008] STC 92 the CJEU observed, at [35] that: “As regards shareholdings in new or existing undertakings, as the explanatory notes confirm, the objective of establishing or maintaining lasting economic links presupposes that the shares held by the shareholder enable him … to participate effectively in the management of that company or in its control ( Test Claimants in the FII Group Litigation , para 182).” 92. In Kronos at [34] to [36] the CJEU indicated that a 10% holding in a company would be insufficient to be regarded as being held with any intention to influence its management and control restriction (see paragraph 83, above). Similarly, in Haribo Lakritzen Hans Riegel BetriebsgmbH and another v Finanzamt Linz (Case C-436/08 and C-237/08)[2011] STC 917 the CJEU stated at [137]: “135. Under Article 64(1) TFEU, the provisions of Article 63 TFEU are to be without prejudice to the application to non-member States of any restrictions which existed on31 December 1993 under national or European Union law adopted in respect of the movement of capital to or from non'member States involving direct investment. 136 It follows that where, before31 December 1993 , a Member State has adopted legislation which contains restrictions on capital movements to or from non'member States which are prohibited by Article 63 TFEU and, after that date, adopts measures which, while also constituting a restriction on such movements, are essentially identical to the previous legislation or do no more than restrict or abolish an obstacle to the exercise of the European Union rights and freedoms arising under that previous legislation, Article 63 TFEU does not preclude the application of those measures to non'member States when they apply to capital movements involving direct investment ( Test Claimants in the FII Group Litigation , paragraph 196). 137 It has already been held that holdings in a company which are not acquired with a view to the establishment or maintenance of lasting and direct economic links between the shareholder and that company and do not allow the shareholder to participate effectively in the management of that company or in its control cannot be regarded as direct investments ( Test Claimants in the FII Group Litigation , paragraph 196). Since the legislation under examination in the context of the present question concerns only holdings of less than 10% of the share capital of the company making the distribution, it must be held not to fall within the scope ratione materiae of Article 64(1) TFEU.” 93. Although it is accepted that Mr Reeves had a 7.4% stake in BlueCrest Ms Abram argues that the transfer of that interest to WHL, in which he was a 100% shareholder and sole director, involved a direct investment as it served to establish a direct link between Mr Reeves and WHL and that this enabled him to participate effectively in the management and control of the company, accordingly article 64(1) TFEU applies to preclude reliance on article 63 TFEU. Alternatively, she contends that even if the relevant investment for the purposes of article 64(1) TFEU was that in BlueCrest it would still amount to a direct investment in a business within the scope of article 64 because Mr Reeves was one of the founders of the BlueCrest and one of three members of the partnership board and, as such he participated effectively in its management and control. 94. However, as Mr Yates submits, the transfer by Mr Reeves to WHL was by way of a gift. He did not receive anything from WHL in return – if he had done he would not be seeking to rely on hold-over relief under s 165 TCGA. Therefore, he could not have made that transfer to WHL to establish or to maintain lasting and direct links between himself and WHL even if WHL had been an “entrepreneur” as envisaged by the explanatory note to the Directive. 95. Although Mr Reeves had a 7.4% interest in BlueCrest and did participate in its management and control, it does not follow that was because of the 7.4% interest. In that his position is analogous with a Chief Executive Officer of a company who has, say, a 5% non-voting shares in it but whose participation in its management and control can hardly be said to be because he holds shares in the company. In any event the 7.4% interest in BlueCrest that was held by Mr Reeves is clearly below the 10% interest which was held not to be within the scope ratione materiae of Article 64(1) TFEU in Haribo which is also consistent with the observations of the CJEU in Kronos at [34] to [36]. 96. For these reasons I find that article 64(1) TFEU cannot apply. Whether s 167(2) TCGA restricts free movement of capital 97. Mr Yates contends that s 167(2) TCGA restricts the free movement of capital because it discriminates against non-UK residents, as compared to UK resident transferors, as non-UK resident transferors are more likely to have non-resident relatives than someone who is resident in the UK. However, Ms Abram says that there is simply no discrimination because Mr Reeves, as a non-UK resident, is charged to tax on the disposal in exactly the same way and subject to exactly the same conditions as a UK resident would be. 98. In O’Flynn v Adjudication Officer (Case C-237/94 ) [1996] All ER (EC) 541 the CJEU considered the case of an Irish national resident in the UK whose son had died in the UK. Although there had been a religious ceremony in the UK the burial took place at a family grave in Ireland. The father applied for a means tested “funeral payment” which was refused because the burial not taken place in the UK. Having considered the relevant authorities, the CJEU stated: “20. It follows from all the foregoing case law that, unless objectively justified and proportionate in its aim, a provision of national law must be regarded as indirectly discriminatory if it is intrinsically liable to affect migrant workers more than national workers and if there is a consequent risk that it will place the former at a particular disadvantage. 21. It is not necessary at this respect that the provision in question does in practice affect a substantially higher proportion of migrant workers. It is sufficient that it is liable to have such an effect. Further the reason why a migrant worker chooses to make use of his freedom of movement within the Community are not to be taken into account in assessing whether a national provision is discriminatory. The possibility of exercising so fundamental a freedom as the freedom of movement of persons cannot be limited by such considerations, which are purely subjective.” 99. Although Mr Yates sought to argue that if “funeral abroad” in O’Flynn was read “non-resident family member”