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Glacially slow progress in M&S group tax relief case

THE RECENT Supreme Court ruling that tax relief claims made by Marks & Spencer for losses, made by its now-defunct Belgian and German subsidiaries, are allowable could leave HM Revenue & Customs open to similar claims.

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 is 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, much to Europe’s chagrin.

Judge Lord Hope ruled in favour of M&S in this, the latest and final round of a marathon tax dispute that has lasted more than a decade.

All along, advisers and commentators have noted the high stakes on the ruling. A win for HMRC would completely scupper other demands that were being prepared on similar bases, while a win for M&S could open the floodgates, practitioners said.

The only explanation, it seems, is that the money on the line for both parties is too great to back down over. At the time, M&S’s losses incurred by the two subsidiaries stood at £99m, with the reliefs reducing the tax liability by £30m.

The consensus, too, among many in the industry is that HMRC’s interpretation made it “impossible or virtually impossible” for other companies to claim similar group reliefs.

This ruling, though, is not the defining one advisers were looking for. Indeed, the only conclusive element was the timing of the claim, with the Supreme Court’s ruling meaning there is effectively a two-year window after losses are made to make a claim. Astonishing, for many, eight years after the European Court of Justice’s original ruling.

It does mean a handful of companies could conceivably make similar claims, but in all likelihood, they won’t be forthcoming given HMRC’s dogged pursuit of the case. Instead, most will content themselves with a watching brief until the dispute reaches its eventual conclusion.

What advisers were saying three years ago is as true now as it was then. This is just the latest round in an epic slog, and while clear law is the highly desirable end result, there is no sign of that any time soon.

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