Italian defeat poses new ECJ questions

There is always a suspicion with big legal cases that only the lawyers ever
win. Multi-nationals seeking to challenge EU member-state tax laws in the hope
of getting millions of pounds back in repayments have cause to ponder the truth
or otherwise of that assertion this week.

At the end of last week, it emerged that the M&S case, key to the loss
relief group litigation order, could return to the European Court of Justice.

Both parties to the action have a different view of the judgment that arose
from the case – and rightly so, according to the judge in charge Mr Justice
Park, who said there was some ambiguity.

The Treasury’s policy of deferring all the potential costs as a result of the
ruling is looking successful. So far it has challenged at every stage of the
GLOs’ respective passages through the European court system.

Separately, and perhaps more importantly for the general direction of tax
affairs, a key opinion on the Italian IRAP case was issued.

The case is a good measure of the extreme impact of the ECJ interventions
into tax. The Italian government had been challenged on a VAT-like tax that it
had introduced. Such taxes were contrary to EU rules, the advocate general

The case, should it go in the companies’ favour, would cost the Italian
government E120bn (£83bn). In such a circumstance, the advocate general
suggested the impact of the judgment should be limited to those who had claimed.

What message could one take from that decision? As a government, you might
think it gives a pretty blank cheque to governments hoping to raise tax in
contravention of EU rules, a somewhat perverse incentive.

As a company, it seems to encourage all those involved with UK GLOs, for
which quite large sums are also at stake, to initiate legal proceedings as soon
as possible to avoid such a temporal limitation too.

The question corporates will be asking is – is it worth it? With the M&S
case unsettled and the ECJ declining to wade in, many will wonder whether they
are simply pouring money into lawyers’ pockets.

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