Group relief payouts expected after EC move

British companies claiming tax relief on losses incurred elsewhere in the
European Union could receive payouts worth hundreds of millions, after the
European Commission criticised the UK’s interpretation of a key court judgment.

The EC told the UK its interpretation of the Marks & Spencer judgment
from the European Court of Justice, handed down in 2005, was ‘unnecessarily
restrictive’.

Marks & Spencer argued it should be allowed to offset losses in France,
Germany and Belgium against its group profits, claiming approximately £30m back
in tax.

But when the ECJ ruled the losses were allowable, the UK Treasury introduced
legislation that partially limited the potential relief.

‘We [Deloitte] don’t think they’ve complied and there’s also been other
professional comment from within the UK that says the rules have been too
tight,’ said Bill Dodwell, tax partner at Deloitte.

The Treasury is thought to have been surprised by the EC intervention.

Peter Cussons, international corporate tax partner at PricewaterhouseCoopers,
said it was difficult to measure final losses ­ the proposed method of
calculation of allowable losses ­ but is not expecting exorbitant payouts to
litigating companies.

‘If it’s final losses, then it’s probably not mega bucks ­ a few hundred
million,’ he said.

The group relief case was regarded as potentially one of the most damaging
for the UK government of all the group litigation orders, the series of tax
cases which had threatened to blow a hole in government finances.

Chris Sanger, head of tax policy at Ernst & Young, said the timing could
prove awkward for the Treasury. ‘Given we have seen a downturn in corporate
profits, there will therefore be greater losses [to offset].’

A Treasury spokesman said the government has just received the request by the
commission and is now considering its response.

Because many UK companies are yet to quantify claims, any definitive costing
is yet to be established.

Cussons also expects the UK to comply with the Commission’s request, and said
the Treasury will need to justify their actions.

‘It’s been far too narrowly drawn and the Commission has agreed with the
complainants,’ he said.

Further Reading:

European
Law: Sweet Victory