The Court of Justice of the European Union (“CJEU”) delivered its judgment today in Case C-172/13 Commission v UK. You will recall that the Commission referred the UK to the CJEU, claiming that the 2006 amendments to the UK’s group relief legislation had failed to implement properly the judgment in Case C-446/03 Marks and Spencer. The Commission argued that the amended legislation, in fact, precluded UK resident companies from obtaining relief for the losses of an overseas subsidiary. Further, the Commission argued that because the amended legislation required the “no possibilities test” (created by the CJEU’s judgment in Marks and Spencer) to be determined at the end of the accounting period in which the losses arose, it was virtually impossible for the test to be satisfied.
In her Opinion in October last year, Advocate General Kokott recommended that the “no possibilities test” be abandoned on the basis that ascertaining whether losses might be available for surrender in future periods created too many procedural difficulties. Accordingly, AG Kokott’s view was that the UK’s amendments to its rules on group relief went beyond that required by EU law, as they allowed for the possibility of cross-border relief in certain cases.
Today the CJEU, whilst not following AG Kokott’s suggestion that the “no possibilities test” is overruled, dismissed the action as the Commission was unable to prove its case. This means that the UK’s group relief legislation at issue has been found to be compliant with EU law.
The Commission’s argument that the UK legislation required the loss making subsidiary to be liquidated before the end of the accounting period in which the losses arose was rejected. The Court considered that the legislation did not impose such a requirement, accepting the UK’s example that relief may be obtained where, immediately after the end of the relevant accounting period, the subsidiary ceases trading and sells or disposes of all its income producing assets. Further commentary was provided on the “no possibilities test” by the CJEU. They indicated that for losses of a non-resident subsidiary to be classed as definitive (and to meet the “no possibilities test”) the subsidiary must not have any income. This was clarified as meaning that if the subsidiary is in receipt of even minimal income, it is possible that losses may be utilised in the future in the overseas Member State.
The second complaint of the Commission was that the UK legislation at issue precluded cross-border group relief for the period before 1 April 2006. This argument failed on the grounds that the Commission did not establish the necessary evidence to prove their case, and was not discussed in detail.