Marks and Spencer wins tax rebate from European Court

Marks and Spencer wins tax rebate from European Court

	Published : Tue, 13 Dec 2005 19:05 By : Andrew Stead Print this Story

BRUSSELS/LUXEMBROUG - Marks and Spencer PLC today won a landmark case in the European Court under which it is able to get a rebate of £30 million from the Treasury.

M&S had incurred heavy losses in it's French, German and Spanish subsidiaries during the last decade even as it continued to rule the roost at home. When it ran up a huge tax bill, the company applied for a "group relief" claiming that it could cut its losses from the UK profits and thereby was liable to pay a lesser tax bill.

However, British law ruled that group relief could be applied to losses incurred in UK only. Therefore M&S had been referred to the European Court, which ruled today that the company was right and the Treasury was wrong to apply domestic tax laws to it.

But the Court also said that this could be the case only when all applications for tax relief in the country where the loss was incurred had been rejected. In the case of M&S, the firm has closed down all its branches in the said countries and hence could not claim relief there.

"Where in one Member State the resident parent company demonstrates to the tax authorities that those conditions are fulfilled, it is contrary to freedom of establishment to preclude the possibility for the parent company to deduct from its taxable profits in that Member State the losses incurred by its non-resident subsidiary," the European Court ruled. It is now being feared that this ruling could prompt many cross-border companies to reclaim their monies as well.

However, tax experts believe that this will not be the case since the instance of M&S was a unique circumstance. In fact, the UK Treasury welcomed this decision, but said that the rule applied to a limited number of cases, "The court's judgment emphasizes that the UK's rules are in principle compatible with EU law, but we accept that in a very small number of very limited circumstances the UK may have to allow relief for losses of the foreign subsidiaries of UK companies," the Treasury said in a statement.