Inland Revenue Will Not Challenge M&S's Freedom Of Establishment Appeal

by Robin Pilgrim, LawAndTax-News.com, London

22 May 2003

Following a High Court decision earlier this month to allow UK retailer Marks & Spencer to appeal an Inland Revenue ruling at the European Court of Justice (ECJ), the British tax authority last week revealed that it will not be appealing the High Court ruling, and will allow the case to proceed unobstructed to Luxembourg.

M&S is arguing that under Article 43 of the European Union Treaty, it should be allowed to offset losses of around 160 million euros made by its French, Belgian, and German subsidiaries between 1997 and 2001 against UK profits, claiming a tax refund of £30 million.

However, a panel of Special Commissioners dismissed the retail group's claim in December, claiming that the UK's group relief rules are not discriminatory:

'Even if the UK group relief rules in this respect create an obstacle to the exercise by the appellant of its right to establishment in other member states...the denial of UK relief for losses on activities the profits of which are not subject to UK tax can be justified as being for the maintenance of the coherence of the UK tax system,' the two Commissioners stated.

Although the company's appeal may take several years, it is expected that an ECJ ruling in its favour would open the floodgates for many other UK-based businesses with subsidiaries elsewhere in the European Union to claim refunds worth billions from the Inland Revenue, with equivalent effects in other countries which have similar group relief tax systems.

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