The UK’s First-tier Tax Tribunal's decision in Panayi has been published. Whilst the case was reminiscent of Gallaher (previously discussed by Sara Luder), the Judge reached what looks like an opposing conclusion.

Panayi concerned a capital gains tax exit charge levied on trustees on ceasing to be UK resident. If applied where trustees become resident in another EU member state, this charge is a restriction on the freedom of establishment. Such a restriction is permissible, if payment of the charge can be deferred. But UK law, as it applied at the relevant time, did not provide for deferral. Was it possible to find a conforming interpretation?

Gallaher raised a similar question in the context of section 171 TCGA providing, broadly, that intra-group transfers are on a "no gain/no loss" basis if the transfer is between UK companies, but not if the transfer is from a UK to a non-UK company. Given that a conforming interpretation by reading a deferral provision into the legislation would require a choice between different deferral regimes and this is a choice which should be made by the legislature rather than the judiciary, the Judge in Gallaher decided that a conforming interpretation was not possible.

In contrast, the Judge in Panayi concluded that this choice was one which a tribunal may make and decided that a conforming interpretation was possible - the Judge read into the legislation the option of deferring payment of the exit charge in five equal instalments without liability to interest or the requirement to give security.

Gallaher has been appealed to the UK's Upper Tribunal. So, we are waiting to find out whether the UK's Upper Tribunal will come down on one side of the Panayi-Gallaher divide or find a way of accommodating both of them.