M&S battles for victory in marathon case with HMRC

M&S boss Stuart Rose

A marathon tax battle between Marks & Spencer and HM Revenue &
Customs is entering its tenth year – with both protagonists showing remarkable

The latest round is currently being fought in the Upper Tribunal (Tax and
Chancery), with the taxman challenging M&S’s claims for tax relief on UK
profits against losses it sustained in its French, German and Belgian
subsid­iaries. In the backdrop of a global crisis which has seen record numbers
of businesses collapse or ship losses, the case has major implications.

If the Upper Tribunal rejects HMRC’s appeal it would pave the way for a flood
of similar claims as companies look to temper their losses from the financial
crisis, advisers say.

However, if HMRC succeeds it would completely scupper other demands already
in the pipeline. Some advisers have claimed that hundreds of millions of pounds
in tax is at stake. A victory for HMRC would give it the legal muscle to fight
the potentially sizeable numbers of claims from companies wanting similar
reliefs in the future.

“A win for HMRC at the Upper Tribunal will render such claims virtually
impossible in practice. Many companies have lodged protective claims for losses
made by EEA resident subsidiaries which have gone into liquidation,” said
Rosemary Blundell, head of National Tax at Mazars.

Blundell could not name the other companies because of client
confidentiality, but confirmed their existence.

“If HMRC’s appeal succeeds, many of these claims will be rejected, leaving
the losses totally unrelieved for tax purposes,” Blundell added.

The case hinges on the retailer trying to offset losses totaling £99m at the
subsidiaries. It would have reduced M&S’ UK tax liability by approximately

Despite its best efforts HMRC cannot overturn European principles that UK
group relief should allow claims for European losses “where those losses cannot
otherwise be relieved”, but the taxman is still resisting the basis on which
claims are made, to the well-documented annoyance of the European Commission.

John Whiting, the CIoT’s head of tax policy, described it as the latest in
“yet another round in a long-running saga” in the campaign by HMRC against loss

“The hope has to be that in the end we get clear law, compliant with EU

rules, over loss offsets. Clearly, in the current business climate, that is
increasingly relevant,” said Whiting.

Neither side is willing to back down. After going through the UK Special
Commissioners and appeals system the case went all the way to the European
Courts of Justice, which backed M&S. As if to confuse matters, the EC has
even taken HMRC to court for its “unnecessarily restrictive” amendments to UK

European officials said HMRC’s interpretation made it “impossible or
virtually impossible” for other companies to claim similar group reliefs.
Advisers say the EC challenge to the UK government in respect of how our group
relief rules were amended following the ECJ’s decision means that this is not
the end of the issue by any means.

“Whatever happens at the Upper Tribunal, the story will not be over,”
Blundell added.

If HMRC wins, then the EC could still challenge the way the taxman interprets
its victory. If M&S wins, there is the potential for another round of
tribunals – as has occurred once already. M&S declined to comment because
the case was ongoing.


HMRC may have taken on more than it can chew by resisting Europe. It cannot
be denied the European Court of Justice ruled that a UK parent company can take
group relief for the losses of a subsidiary resident in another EU member state,
but only if the losses cannot be used in the subsidiary’s home state. This seems
pretty cut and dried and M&S thought it fell into this category – until it
saw the taxman’s interpretation. As a result of its treatment of the ruling,
HMRC put the EC’s nose out of joint to such an extent that it was taken to court
by the executive arm of the EU. This will do nothing to endear us to our
European peers and may damage our reputation at the EU high table.

Further reading:

relief payouts expected after EC move

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