Revenue backs out of M&S appeal

Link: M&S Court case begins

The surprise decision has led European tax experts to believe the Inland Revenue, and the UK judiciary, is resigned to the growing power of Europe over UK tax affairs.

Observers believe the decision by Justice Parks earlier this month to refer the case to the ECJ indicates resignation in the face of EU tax law. ‘He was clearly saying that EU law is developing and there?s no point in giving a judgement,’ said Christopher Morgan, a partner in the European tax department of KPMG.

M&S is claiming it is owed £30m in overpaid corporation tax because it was not allowed to offset loses sustained in European subsidiaries against UK-earned profits.

Experts now believe that an urgent debate is needed about how the government should respond to the growing influence of Europe in tax matters.

‘The last thing we want is a knee-jerk reaction that says, for example, to stop Marks & Spencer type claims we are going to abolish group relief within the UK. All that will do is damage business already here and deter people from setting up in the UK,’ said Morgan.

Despite this, observers believe the case is good news for corporate taxpayers because it demonstrates they should not be deterred from making claims against the Revenue.

A spokeswoman for the Inland Revenue said that while it has decided not to appeal the decision, it will defend the case ‘vigorously’ at the ECJ on the grounds that it is correct and ?UK regulation is not contrary to European law’. The case is expected to be heard by the ECJ, mid 2004.

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