“Depending on Counsel’s views as to the prospects of success, the companies may seek to insure against the risks of litigation.”
“We start by recalling that the judge read Leggatt J’s statements in Gestmin v Credit Suisse and Blue v Ashley as an “admonition” against placing any reliance at all on the recollections of witnesses. We consider that to have been a serious error in the present case for a number of reasons. First, as has very recently been noted by HHJ Gore QC in CBX v North West Anglia NHS Trust [2019] 7 WLUK 57, Gestmin is not to be taken as laying down any general principle for the assessment of evidence. It is one of a line of distinguished judicial observations that emphasise the fallibility of human memory and the need to assess witness evidence in its proper place alongside contemporaneous documentary evidence and evidence upon which undoubted or probable reliance can be placed. Earlier statements of this kind are discussed by Lord Bingham in his well-known essay The Judge as Juror: The Judicial Determination of Factual Issues (from The Business of Judging, Oxford 2000). But a proper awareness of the fallibility of memory does not relieve judges of the task of making findings of fact based upon all of the evidence. Heuristics or mental short cuts are no substitute for this essential judicial function. In particular, where a party’s sworn evidence is disbelieved, the court must say why that is; it cannot simply ignore the evidence.”
“Depending on Counsel’s views as to the prospects of success, [Redevco] may seek to insure against the risks of litigation.”
“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.”
“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.”
“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”
“As you are aware from our previous correspondence the company migrated to the Netherlands with effect from16 January 2008 . As set out in the company’s letter of31 October 2007 to your colleagues at CT & VAT International (Company Migrations), the company does not believe that ‘any tax charge arises as a consequence of the migration…, for example under s337(1) ICTA 1988, s185 TCGA 1992 or para 10(a) Sch 9 FA 1996 as… such charges are invalid under European Community law’. Consequently no such charges are self assessed in the CT600.”
“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,”
“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 theTaxes 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.”
“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.” (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.”
“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.”
“… 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”
“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.”
“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.”
“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 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).”
“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.”
“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.”
“ … 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.”