MARKS & SPENCER has claimed victory in the Supreme Court following a long-running dispute with HM Revenue & Customs over tax relief for losses made by its now-defunct German and Belgian subsidiaries.
The crux of the matter was whether M&S could offset losses caused by the closures of its Belgian and German operations against its UK profits by way of group relief.
In 2005, the European Court of Justice ruled such practice is permissible, provided that the losses are not used in the subsidiary’s resident nation, now known as the ‘no possibilities’ test.
However, HMRC held the relief should be calculated at the end of the accounting period in which the losses were claimed, rather than the date of the claim.
Judge Lord Hope ruled in favour of M&S, but warned against the possibility the facility could be used to avoid tax.
In summing up, he said: “The national court will, of course, be alert to the possibility that the claimant company may simply be choosing in which member state it should be taxed. However, what M&S was doing can be attributed to the fact that the companies had ceased trading six years earlier, and not to the exercise of an option to choose where to seek relief for the losses that had been incurred.
“There is no reason to think that what it did must be seen as a threat to the balanced allocation of taxing powers.”
In 2010, Upper Tier Tribunal judges decided the retail giant could claim group relief for losses in Germany and Belgium during 2000, 2001 and 2002. Tax returns in the two countries for the period in question show collective losses of more than £75m, which would reduce M&S’ UK tax liabillity by approximately £22m. The Court of Appeal later upheld Marks & Spencer’s position.
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