The latest chapter in the protracted Marks & Spencer loss relief tax case
will unfold today when the Court of Appeal releases its judgment on issues
referred back to the UK courts by the
European Court of
The case dates back to the accounting periods from 1998 to 2001 when the
retailer claimed to offset losses generated in a number of overseas territories,
namely Germany, France, Belgium, against UK profits. Claims were made for losses
totalling £99m, reducing the M&S’ UK tax liability by approximately £30m.
S claimed that the UK loss relief rules were in breach of EU law,
on the basis that a UK resident company which is a member of a group may claim
to offset its profits against losses incurred by another member of the same
As the UK rules stand, only losses generated by UK group companies are
eligible for offset. Non-resident UK companies do not qualify for group relief.
The M&S challenge prompted several other businesses decided to make
similar challenges on group relief through the courts and tax returns.
Collectively, the claims are believed to be worth billions of pounds worth of
In December 2005 the ECJ ruled that the UK Group Relief rules operated in
breach of EU law in denying relief for overseas losses which could not be used
in the territory in which they were generated.
The ruling, however, was only a limited victory for M&S, by limiting the
cases when group relief could be claimed. The ECJ referred the matter back to
the UK courts to interpret and give effect to the ruling.
The matter thus went before the High Court, where a very narrow
interpretation of the ECJ ruling was made, prompting M&S to appeal.
Today, the Court of Appeal is due to give its judgment. Experts at
KPMG believe that the key
issues to emerge from the case will be whether further guidance from the ECJ is
required; what the correct test for determining whether losses can be claimed in
the UK should be; and whether all claims for overseas losses be allowed without
restriction for periods that are not covered by UK rules which allow for cross
border group relief in the situations envisaged by the ECJ.
It is possible that the Court of Appeal may not be the last port of call in
this ongoing tax battle, as both parties may decide to take the case to the
House of Lords should they lose.
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