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Insight: Whose relief is it anyway

The ECJ ruling enables M&S to offset losses made in other EU member
states against UK profits, but only if the losses cannot be used in the other
member state against current or earlier profits, and there is no possibility of
the losses being used that way in future. The case will now return to the
British courts, and M&S can renew its claim for a tax refund of up to £30m.

Meanwhile, the UK’s group relief rules will need to be amended to give effect
to the judgment, as a result of which the Treasury could lose around £50m a
year. “While it will cost national exchequers money, fears of a doomsday
scenario have been quashed,” says John Davies, head of business law at ACCA.
“Because of the conditions imposed on the ruling, it doesn’t open the

More than 100 group companies have made M&S-style claims, all of which
will need to review their position. “A number of companies may not be able to
take advantage of today’s ruling because they still have ongoing operations in
Europe, and will need to claim tax relief on losses where they occur,” says Bill
Dodwell, tax partner at Deloitte.

“Both sides are claiming victory,” comments Hartley Foster, head of tax
litigation at lawyers DLA Piper. “The Treasury has indicated the impact will be
quite small, but acknowledged they will need to amend the UK’s loss relief
legislation to allow foreign losses to be used in the way set out by the ECJ.”

Foster believes the ECJ was influenced by member states’ concern about
potential “double dipping”, where companies would take the same losses that
arose in France and set them off against profits in the UK, Germany, Spain and
so on. “That’s why the ECJ has caveated the decision,” Foster says.

Those caveats have created uncertainty, however. “The nuances and financial
implications will take some time to work through,” he says.

Anton Hume, partner at Grant Thornton, agrees. “The ruling will apply in
limited circumstances,” he says. “Invariably companies have very specific
individual circumstances and so further questions will need to be referred to
the ECJ before the full position becomes clear.”

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Philip Hammond