Marks & Spencer is arguing that UK provisions on group tax relief are in breach of European law, as they prevent an EU-based parent company from offsetting losses incurred by subsidiary companies in other member states, thus violating the principle of freedom of establishment.

In an opinion released earlier in the year Poiares Maduro, an Advocate General to the ECJ, supported M&S and rejected the German Government's argument that the taking into account of foreign losses by the State concerned could not be permitted because it would lead to a reduction in tax revenue, and thus to major budgetary difficulties for the Member State concerned.

The AG argued however that firms should not be able to offset tax loses against profits in the country where the parent company is based if they can also offset losses in the country where their subsidiary is based.

Opinions by Advocates General are followed by the ECJ in about 80% of cases, but European governments may outflank the European Court by changing tax rules in an attempt to prevent the depletion of national coffers.

"There is great concern about this," stated Jeannot Krecke, Economy Minister of Luxembourg, at a meeting of European Finance Ministers in April.

He went on to add that EU ministers "will try to find a defence mechanism" against such claims.