The Supreme Court has issued further rulings in the long-running dispute between HMRC and Marks & Spencer (M&S) concerning the availability of cross-border relief and the method of quantifying such relief.

The dispute, which dates back over a decade, relates to the M&S claim for group relief from corporation tax in respect of losses sustained by two of its subsidiaries, based in Germany and Belgium, which ceased trading in 2001 and went into liquidation in 2007. HMRC’s original refusal to grant relief was challenged by M&S, and was overturned in the course of a series of legal hearings including at the European Court of Justice (ECJ), but some key points remained unresolved.

The Supreme Court gave judgment on three specific issues in Commissioners for Her Majesty’s Revenue and Customs (Respondent) v Marks and Spencer plc (Appellant) ([2014] UKSC11), which had previously been considered by lower courts. The first was the earlier judgement which said that M&S was in principle entitled to make sequential/cumulative claims for the same losses in respect of the same accounting period. HMRC had appealed against this, but this appeal has now been turned down with the judges saying there is no support for the conclusion that only one claim can be made.   

The next issue was whether M&S was allowed to make fresh ‘pay and file’ claims after the European Court of Justice (ECJ) gave a ruling which set out the  circumstances in which losses may be transferred cross-border, when at the time M&S made those claims, there was no means of foreseeing the test established by the court.  

Earlier rulings said that M&S could make fresh claims, but also held that such claims were time barred. M&S appealed to the Supreme Court over the time bar, but has now lost this appeal. The Supreme Court judgement says that ‘relevant jurisprudence establishes that a member state may impose a reasonable time limit in the interests of legal certainty. The relevant pay and file claims are now time barred.’

The final issue before the Supreme Court was what should be the correct method of calculating the losses available to be transferred, with earlier rulings favouring the method advanced by M&S to that put forward by HMRC.  HMRC appealed on this issue but has now been turned down.

For corporates with loss-making subsidiaries, this judgment looks generally favourable

M&S’s approach was to begin by applying the local rules to determine whether there is a loss in a particular period and, if so, the amount of the loss that remained unutilised. The unutilised loss calculated by reference to the local rules is then converted to UK principles. The Supreme Court said that this method did not give the parent company greater relief than would have been available had its subsidiary been resident in the same state as the parent.

In May 2013 HMRC lost another appeal in this case, relating to when ECJ’s ‘no possibilities’ test should be applied as the first step in making a claim for group cross-border relief. The Supreme Court upheld M&S’s view that the no possibilities test should be applied at the time the group relief claim was made and not as HMRC had contended, at the end of the accounting period in question.

Mark Cawthron, tax writer at CCH said: ‘For corporates with loss-making subsidiaries, this judgment looks generally favourable. Though for M&S, it’s true, an important plank to its claim to access certain of its ‘Euro-subsidiary losses’ has been rejected.’

There is also growing pressure for HMRC to settle outstanding claims quickly.

Roopa Aitken, partner at Grant Thornton UK LLP said: ‘This recent judgment from the Supreme Court, which is generally positive for the taxpayer, provides some long-awaited clarity over  EU loss relief claims. Given that this litigation has been running for over 10 years, it is hoped that HMRC will now act speedily to settle outstanding claims and that the UK will revisit the legislation to ensure it is fully compatible with European law.’

The full judgment is available at www.supremecourt.gov.uk/decided-cases/index.html