EU tax ruling could cost Revenue dear
8 Apr 05
Advocate general supports Marks & Spencer's claim to offset overseas losses
UK laws that prevent companies offsetting overseas losses against UK profits are in breach of EU rules, acording to an advocate general's ruling at the European Court of Justice.
The opinion by Luis Poiares Maduro was delivered in a case referred by the English High Court, in which Marks & Spencer sought to offset losses sustained at foreign branches under the UK group relief provisions. The court refused the claim as group relief only applies to losses in the UK, but asked the European Court for a ruling on whether this was compatible with EU law.
M&S argue that differences in tax treatment between domestic and foreign branches of the same company contravene the principle of freedom of establishment.
The case may represent the most significant EU ruling for governments and corporate taxpayers alike. If the court follows the advocate general's advice, as it does in around 80% of cases, it could cost the Inland Revenue up to £4 billion in repayments to other companies affected. Vodafone alone estimates it could claim about £2 billion.
Other EU governments could be similarly affected - though not all, as Italy, Denmark and Austria are among those that already allow relief against foreign losses.