The Court of Appeal ruled in the retail giants favour this week in a move
that could lead to payouts for hundreds of multinationals. Court papers showed
that HMRC believed 70 other multinationals
and a further 300 companies would have been awaiting the
S decision to see if they could claim group relief.
In its judgment, the Court of Appeal ruled that as long as a company showed
there was ‘no real possibility’ of using foreign subsidiary losses locally, it
should be allowed to off-set those losses against UK profits.
The ruling leaves the government’s interpretation of the 2005 European Court
of Justice decision on the M&S case, incorporated in the 2006 Finance Act,
dead in the water. The government was refused leave to appeal but may petition
In the 2006 Finance Act, the government introduced legislation stating that
if it were at all possible for a UK company to claim a foreign subsidiary loss
locally, no matter how unlikely the possibility, then the company should not be
eligible for group relief.
The Court of Appeal, however, said that all fanciful possibilities should be
disregarded and that only practical opportunities to use relief should be
considered. In the M&S case, this meant the retailer should be eligible for
group relief as there was no chance of it resurrecting its businesses in Germany
and Belgium, where the losses were suffered.
Graham Aaronson QC, who argued the case for M&S, said the Court of Appeal
decision should settle any confusion over the meaning of the 2005 ECJ decision
on M&S. ‘The world has been in two camps – one arguing that the ECJ ruled in
favour of HMRC and the other saying
S was the winner. The Court of Appeal judgement should finally put the
debate to bed,’ Aaronson said.
Jonathan Bridges from KPMG’s international tax team said the Court of Appeal
had provided a far ‘wider interpretation’ of the ECJ’s ruling than the
‘extremely restrictive’ judgment from the High Court in April. He warned,
however, that companies would still have to show that they had not used losses
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