Contact: Pat Cullen
Deloitte.
National Taxation Partner
+353 1 417 2200

Contact: Andrew McLindon
Wilson Hartnell Public Relations
+353-1-669 00 30

The Advocate General (AG) made a recommendation today (April 7th), to the European Court of Justice (ECJ) finding in favour of the taxpayer, in a case which has been watched closely by international business and Finance Ministers across Europe. 

“This is a partial victory for M&S - they have won on a point of principle, but it is still not clear that they, and companies like them, will necessarily be successful in their claims,” comments Pat Cullen, Senior Tax Partner of Deloitte. “The AG opinion, if followed by the ECJ, gives room for Member States to protect their revenues. The AG opinion says that the UK must give tax relief for foreign losses, but only if those losses cannot be used abroad. Governments will point out that in many circumstances the foreign losses can be used abroad – and so, in practice, UK tax relief need not be given.

The tax legislation in Ireland in respect of the granting of relief for losses within a group is almost identical to that in the UK. “We can expect changes in both Ireland and UK tax law should the court adopt the AG’s opinion and decide in favour of M&S – although perhaps not as major as had been feared. The final ECJ decision can be expected in approximately 6 months time.”

M&S has claimed £30 million of tax relief refund in the UK for losses made by subsidiaries in other European countries (see notes to editors).  The Inland Revenue has refused to allow tax losses from its overseas subsidiaries to be offset against its UK profits, based on current UK domestic law. Over one hundred international groups have made comparable claims for loss relief in their UK tax returns and they will now need to consider whether they are still entitled to a windfall.

Some Irish companies have already lodged claims with the Irish Revenue in the hope of a successful outcome to the M&S case. The quantum of these claims is not known but Irish tax payers will be very interested in the final outcome of this case.

If the AG’s opinion is followed by the court, Irish and UK law will need to change to give effect to it. The Governments would need to bring in measures to limit loss relief, so as to prevent companies from double dipping their losses i.e. get relief for the same losses twice.

- ENDS –

Notes to Editors
Group relief for losses
The relevant UK group relief legislation is in Taxes Act 1988 as amended by Finance Act 2000. Prior to April 2000, only companies resident in the UK are eligible for group relief. Since April 2000, both the surrendering and claimant company have to be UK resident or carrying on a UK trade.  The current Irish rules are similar to the UK.

M&S case and other loss relief claims
M&S opened its Paris store in 1975 and over the next 20 years expanded throughout continental Europe. By the late 1990s the European operations were making substantial losses and in 2001 a decision was taken to withdraw from France, Belgium and Germany. The losses which are the subject of the appeal are for 1998, 1999, 2000 and 2001 and arose in companies resident for tax purpose outside the UK.
The Marks & Spencer loss relief claim was rejected by the Special Commissioners in 2002.  M&S then appealed to the High Court which referred the case to the European Court of Justice (ECJ) for a preliminary ruling in 2003.  There was a hearing on 1 February, following a written procedure in which the parties, the European Commission and seven other Member States put their argument in writing for the court. 
M&S was supported by the European Commission.  The UK Revenue was supported by Germany, Greece, France, Ireland, Netherlands, Finland and Sweden.  Germany requested a limitation of the effect of the decision in the event that M&S should succeed.  The Advocate General's Opinion was given on 7 April 2005 and an ECJ ruling may be expected perhaps in six months’ time.
Advocate General Maduro’s opinion is a recommendation to the court on how to decide the case.  A panel of 13 ECJ judges will then decide the point of interpretation of EC law and the case will come back to the UK’s High Court for it to issue its judgment, perhaps by the end of 2006.
Over a hundred international groups have made comparable claims for loss relief in their UK tax returns.

ENDS

 

For more information, please contact:
Pat Cullen, Partner, Deloitte

 

Andrew McLindon, WHPR
Tel: 01 669 0030/ 087 288 9601
E-mail: andrew.mclindon@ogilvy.com