ECJ ruling on M&S could open floodgates

Lawyers close to European cases claiming repayment of UK tax have disputed HM
Revenue & Customs suggestions that the claims have reached a ‘high
watermark’.

Dave Hartnett, director general of HMRC, told Accountancy Age this
month that it was ‘possible that we have seen the high watermark of the European
court’s decisions in favour of big claims for repayment’.

There are currently six group litigation orders being brought by
multinationals against the UK government, alleging that UK tax law is
inconsistent with EU single market rules.

The European Court of Justice has so far proved receptive to arguments across
Europe that individual member state rules are discriminatory, raising fears that
governments could find multi-billion pound holes in their accounts if this trend
continues.

But lawyers familiar with the case say that they are expecting a raft of
smaller claims to be brought that previously would not have been worth the legal
costs, if the M&S case goes in favour of the taxpayer.

‘If M&S wins hands down, I would expect a lot of claims to come out of
the woodwork,’ said a source close to the case.

The M&S case concerns group loss relief. The retailer is arguing that it
should be able to claim losses incurred by subsidiaries in other parts of the EU
back against UK tax, in the same way that it can do with loss-making
subsidiaries in the UK.

Lawyers involved in the disputes have also raised the prospect of new claims
being brought, over transfer pricing in particular.

Transfer pricing rules were updated recently in order to be fully
EU-compliant, but legal sources continue to suggest the situation may not be
legally watertight.

It is possible that the court could change its mind with regard to the claims
as well, and move away from the taxpayers’ interests.

Speculation surrounds the delay over the M&S decision, which was expected
earlier this month. Sources suggest this means that either the court wants to
overturn the advocate general’s opinion in favour of M&S, or that it is
grappling with the ‘double-dipping’ issue.

The advocate general’s opinion was unclear on ‘double-dipping’ as to whether
reliefs could not be claimed if another relief had been used elsewhere, or
whether they could not be claimed where reliefs could have been used elsewhere.

The exact impact of the GLOs, if they all go in favour of taxpayers, is still
unclear. Figures vary between £5bn and £20bn.

The chances of success in Europe have always been higher for the taxpayer
than other tax cases in the UK. Taxpayers have historically won 80% or 90% of
European court cases.