M&S claims further Supreme Court cross-border tax victory

by Calum Fuller

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21 Feb 2014

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Front of a Marks and Spencer shop

MARKS & SPENCER has claimed a further Surpreme Court victory in its long-running dispute with HM Revenue & Customs over tax relief for losses made by its now-defunct German and Belgian subsidiaries.

The crux of the matter was whether M&S could offset losses caused by the closures of its Belgian and German operations against its UK profits by way of group relief.

In 2005, the European Court of Justice ruled such practice permissible, provided that the losses are not used in the subsidiary's resident nation, now known as the ‘no possibilities' test.

However, HMRC held the relief should be calculated at the end of the accounting period in which the losses were claimed, rather than the date of the claim.

HMRC's claims were dismissed in May last year, when Judge Lord Hope observed there is "no reason to think that what it did must be seen as a threat to the balanced allocation of taxing powers".

The Supreme Court ruled in favour of Marks & Spencer's method of calculating the losses and that M&S could, in principle, make sequential/cumulative claims for the same losses in respect of the same accounting period.

However, the court ruled that fresh claims made by the retailer were time barred. M&S had previously appealed the time barred decision.

In summing up, Judge Lord Neuberger said: "The taxpayer is entitled to advance claims for cross-border relief provided that it is in time to do so... The correct method for calculating the losses available to be surrendered is the one contended for by M&S. It does not give the parent company greater relief than would have been available had its subsidiary been resident in the same state as the parent, whether in Germany or in the UK."

HMRC said in a statement: "The judgment confirms we are not obliged to accept out of time claims, but we acknowledge that subsequent alternative cross-border group relief claims can be made within the statutory time limits."

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