Marks & Spencer has won a Supreme Court ruling against HMRC in a case about group relief on subsidiary losses, which has run for ten years.
This litigation concerns claims by Marks & Spencer plc (M&S) for group relief in respect of losses sustained by two of their subsidiaries: Marks and Spencer (Deutschland) GmbH (MSD), which was resident in Germany; and Marks and Spencer (Belgium) NV (MSB), which was resident in Belgium.
The claims were originally made and refused by HMRC more than ten years ago. They raise questions about the availability of cross-border group relief and the method of quantifying the reliefs which are is available. Despite nine separate hearings since the case was first considered in December 2002, the issue was only resolved at a Supreme Court hearing. The judgment was given on 22 May.
The argument underlying M&S's claims was that the UK legislation, which restricted group relief claims to losses of UK resident companies and (after Finance Act 2000) losses of UK branches of non-UK resident companies, was contrary to article 43 of the EC treaty, on freedom of establishment, and were thus unlawful.
Lord Hope said that the issue came down to a choice between the 'principled approach' contended by HMRC, and the 'practical approach' contended by M & S. He said the HMRC approach would mean there would be no realistic chance of satisfying the 'no possibilities' test at all. The 'balanced allocation' of taxes principle did not require to be supported by an approach which restricts the claimant to that extent.
The Court acknowledged that in arriving at its view, it had the benefit (which the Court of Appeal had not) of the recent (February 2013) ECJ decision in the A Oy case (Case C-123/11 Proceedings brought by A Oy [RDT 181]) which showed that the mere fact that losses can be carried forward at the end of the accounting period does not mean that the 'no possibilities' test cannot be met.
'The consequences of the recent A Oy case have perhaps yet to be fully digested, but the particular issue decided by the Supreme Court in the M & S case - the relevant date at which to consider the 'no possibilities' test - may now be concluded. If that is so though, other issues remain from the case, to be argued and determined,' said CCH tax specialist Mark Cawthron.
Responding to the ruling, Jake Landman, a tax expert at Pinsent Masons, said the Supreme Court's decision was not surprising in view of the A Oy case. 'Although A Oy involved different facts to M&S the legal issue was the same: can the circumstances which mean there is no possibility be brought about through actions chosen by the taxpayer,' he said.
'Although this is a victory for M&S it is not the end of the road. There are still a number of issues remaining which will be considered at further Supreme Court hearings. In addition even when the M&S case concludes there are issues around whether the principles apply in the same way to companies with different group structures.'
The judgment in Commissioners for HM Revenue & Customs v Marks and Spencer plc (2013) UKSC 30 is available HERE
Read the Oy judgment HERE
Three other issues put to the Court were held over to be heard at a later date.