M&S wins latest loss relief battle

THE COURT OF APPEAL has upheld Marks & Spencer’s position in the long running dispute with HM Revenue & Customs over the use of losses in overseas jurisdictions.

The saga began in 2002 and centred on the business’s use of losses made in subsidiaries based in Belgium and Germany to offset its UK tax bill. The European Court of Justice ruled that this practice was acceptable, so long as the losses could not be used for relief in the subsidary’s resident country – the so-called “no possibilities” test.

The main area of contention is now over when the test should be applied – at the end of the accounting period where the losses applied, which is HMRC’s position, or the date of the claim. M&S contends that it would not be possible to apply the test at the end of the accounting period, because it would not be possible to forsee what reliefs would apply. The upper tax tribunal agreed with the taxpayer.

The latest ruling in the Court of Appeal upheld this position.

Peter Cussons, tax partner at PwC, said this was a “steady as she goes” ruling, and it is likely that this is not the end of the saga.

Stephen Herring, tax partner at BDO, said that these issues are clouding the main point, that M&S is entitled to use the loss relief.

“HMRC have attempted to, artificially, in my view, place obstacles in the way of M&S securing group relief in the circumstances which arose here by attempting to adopt an unduly restrictive view of the group relief claims,” he said

“I think HMRC should resist the temptation to appeal this judgement and focus upon pursuing cases where the EU rights are being abused to assist tax avoidance schemes,” Herring added.

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