EU Ministers To Hunt For Defence Against M&S Tax Claim

by Robert Lee, Tax-News.com, London

14 April 2005

European Union finance ministers have vowed to find a "defence mechanism" to counter the likelihood of tax revenue shortfalls should the British retailer Marks & Spencer ultimately be successful in its legal bid to offset losses made by foreign subsidiaries against tax.

The issue formed one of the main talking points during Tuesday's Ecofin meeting of EU finance ministers, following a legal opinion by an Advocate General at the European Court of Justice in favour of M&S which could leave national governments open to large retrospective tax refund claims.

"There is great concern about this," remarked Jeannot Krecke, Economy Minister of Luxembourg, which is holder of the rotating EU presidency.

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

Marks & Spencer had argued that UK provisions on group tax relief were 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, a reading of the situation with which Advocate General Mr Poiares Maduro agreed.

However, the AG also argued 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.

However he stated that the risk of significant falls in tax revenues, as Germany had been arguing, was not a justifiable defence of the current system.

The Advocate General's decision is not binding on the ECJ, although the court tends to follow such recommendations in the majority of cases. A final decision is expected later in the year.

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