M&S wins landmark tax case

Marks & Spencer has won a landmark tax ruling in a European Court, which could potentially cost the UK Treasury billions of pounds.

The European Court of Justice granted Marks & Spencer the right to offset losses incurred by the closure of operations in other EU countries against its UK tax bill.

The High Street retailer, which is resident in the UK for tax purposes, had gone to court when it had been unable to lower its UK tax bill by offsetting losses incurred in its German, French and Spanish subsidiaries during the Nineties, against its UK profits.

The company had sought “group relief” under UK tax laws, but the claim was refused on the grounds that the law only applied to losses incurred in the UK.

Britain’s High Court sent the case to the European Court of Justice in 2003. Today’s ruling said that the UK’s refusal to allow the offset of losses violated EU regulations.

The verdict will save Marks & Spencer around £30 million. However, it is feared that the ruling could cost the Treasury billions of pounds, if other UK-based cross-border companies attempt to gain repayment of tax money, following the new ruling.

However, the ruling also stated that losses could not be offset against profits in a company’s home market, if they could be claimed in the country where the losses occurred.

The court said that the UK’s rules were compatible in principle with the EU legislation, but said they were contrary to “freedom of establishment”, because they did not take into account a situation where companies could not offset losses in the country where they occurred.

David Rothenberg, a senior tax executive at chartered accountants Blick Rothenberg, said that the government should prepare to rush through any claims, particularly from companies with a tax year that ended in December.

Mr Rothenberg warned that the ruling could cost the UK Exchequer “billions of pounds” and said: “It is not only the UK Exchequer that is at risk from these decisions – governments throughout Europe are anticipating considerable costs.”

(KMcA/GB)