By Daisy Ayliffe - 13th December 2005
The EU’s top court has ruled on that British retailer Marks & Spencer can claim tax relief from losses outside the UK home market with certain conditions.
Tuesday’s judgment could set a precedent costing European governments hundreds of millions of euro and had kept UK Treasury officials in London waiting with baited breath.
M&S alleged the UK had breached EU laws by denying it the right to offset losses incurred in another EU country against its UK tax bill.
"Where in one member state the resident parent company demonstrates to the tax authorities that those conditions are fulfilled, it is contrary to freedom of establishment to preclude the possibility for the parent company to deduct from its taxable profits in that Member State the losses incurred by its non-resident subsidiary," the European Court of Justice declared.
The condition was that the loss-making subsidiaries are unable to claim tax relief in the country where they are established.
Judges in the UK asked the ECJ for guidance after the government said M&S could not offset losses of its subsidiaries in other EU countries, even though it would be allowed to do so if the subsidiaries were based in Britain.
The company argued that this went against its freedom to open shops across the EU.
"We are pleased that a decision has been reached but we have only just received it and are digesting its contents. It would be inappropriate to make any further comment until we have assessed the full ramifications of the decision," an M&S spokeswoman said on Tuesday.
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