M&S group relief victory fails to open floodgates

In the latest bout of a ten-year sparring contest in the courts, Marks &
Spencer has won a points victory over the taxman.

M&S has been trying to claw back group relief on its UK tax bill for
losses suffered by its former German and Belgian subsidiaries as far back as

Judges said the retail giant was entitled to claim group relief for losses
made in 2000, 2001 and 2002 but rejected other claims.

Others challenging HM Revenue & Customs on the same front have been
warned by advisers that a win for them is by no means guaranteed, despite M
&S’s success.

The main issue hangs on whether there is “no possibility” that the losses a
company makes in a foreign subsidiary are unable to be offset in the country
they were generated.

“Other companies which have lodged UK group relief claims for the losses of
European Economic Area resident subsidiaries need to double check that the ‘no
possibilities’ test was met at the time the claims were made and, if necessary,
make new ones when the test is met,” said Rosemary Blundell, director of
national tax at Mazars.

Law firm Norton Rose has said there could be “hundreds of millions of pounds”
at stake in possible claims.

“Although only M&S’s claim is currently being heard by the tribunal, many
companies have lodged protective claims for their European subsidiaries’
losses,” the firm said in a briefing paper on the eve of the decision.

In the context of the global credit crunch, which has seen UK-based
multinationals suffer major losses, the ruling also has significant implications
for those who attempt to smooth out the effects of the financial crisis in
future years.

Challenges may stay behind closed doors. The claims are filed as part of a
company’s corporation tax returns and do not come into the public domain unless
court action is taken.

The M&S case has proved so contentious it has been dragged through the
UK’s court system, all the way to the European Court of Justice and back again,
with the taxman and the retail giant trading claim and counterclaim.

Since then, the UK courts have been left with the highly complex task of
considering when the “no possibilities” test is applied, how the losses
available for relief should be computed and the administrative process of making

“Companies should also check that the way in which the losses have been
calculated is consistent with the Upper Tribunal’s ruling,” Blundell added.

An HMRC spokesman said: “HMRC is currently studying the detail of this
judgment carefully before deciding any further course of action.”


Further reading:

&S wins partial victory in marathon battle with taxman

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