The Trustees of the Panico Panayi Accumulation and Maintenance Settlements Nos. 1 to 4 v The Commissioners for HMRC

An exit charge restricting freedom of establishment is compatible with EU law if payment can be deferred. Where legislation imposes the charge but omits that facility, a conforming interpretation may insert the minimum words needed to permit payment in five annual instalments, provided the interpretation accords with the legislation’s underlying thrust and does not make policy choices reserved to Parliament.

The declaratory effect of judicial decisions makes such an interpretation retrospective. That does not invalidate it for legal uncertainty or legitimate expectation. The Court of Justice identifies the EU-law requirements; the national court determines whether and how domestic legislation can conform. A tribunal without jurisdiction over interest cannot remake a determination or make binding orders concerning interest.

These conjoined appeals concerned exit charges imposed when the Trustees moved the management of trusts from the United Kingdom to Cyprus and when Redevco moved its residence to the Netherlands. The relevant provisions of the Taxes Management Act 1970, read with the applicable capital-gains and corporation-tax provisions, imposed tax without allowing payment to be deferred.

The First-tier Tribunal adopted a conforming interpretation permitting payment in five equal annual instalments. The Upper Tribunal upheld that interpretation but set aside and remade the First-tier Tribunal’s determinations because it considered that they had dealt with interest. The central issues were whether the interpretation was permissible, whether EU law required a choice to be made at the time of migration or payment to await realisation of assets, and whether the Upper Tribunal had jurisdiction to decide the interest issue.

The appeals were dismissed except in relation to interest. Redevco’s appeal was allowed to the extent that the First-tier Tribunal’s conforming interpretation was restored. The Upper Tribunal’s conforming interpretation in Panayi remained in force. The cross-appeal did not require decision.

1. Nature of the incompatibility. The exit charge itself was capable of justification by the allocation of taxing powers between member states. The relevant breach was the combination of the exit charge and the absence of a provision allowing deferred payment. A conforming interpretation supplying that missing facility was directed to the correct incompatibility.
2. Conforming interpretation. Section 2 of the European Communities Act 1972 required domestic legislation to be read subject to enforceable Treaty rights. The interpretation adopted by the tribunals inserted only what EU law required: an option to pay the exit tax in five equal annual instalments, with the first instalment due on the ordinary due date and later instalments annually. That addition did not contradict the statutory purpose of imposing tax and was consistent with the existing power to pay capital gains tax by instalments.
3. Retrospectivity and limits. The retrospective operation followed from the declaratory theory of judicial decision-making. It did not breach legal certainty or create a legitimate expectation that the tax would never be payable. The Court of Justice had not required payment to await realisation of the assets. Adopting that alternative would itself have involved a policy choice. Nor did later, more detailed legislation determine the meaning of the earlier legislation.
4. Interest and jurisdiction. Properly understood, the First-tier Tribunal’s reference to interest did not form part of its conforming interpretation. The Upper Tribunal therefore had no power to set aside and remake the determinations on that basis, and no power to make a binding decision about interest.

• Upper Tribunal (Tax and Chancery Chamber): In conjoined appeals arising from determinations UT-2020-000404 and UT-2023-000095, the Upper Tribunal upheld a conforming interpretation allowing payment of the exit tax in five annual instalments, but set aside and remade the First-tier Tribunal’s determinations on the basis that they had dealt with interest.
• Court of Appeal (Civil Division): The court dismissed the substantive challenges to the conforming interpretation. It allowed Redevco’s appeal on the interest issue and restored the First-tier Tribunal’s conforming interpretation in Redevco; the Upper Tribunal’s interpretation in Panayi stood. The cross-appeal was not decided.