ECJ, C-172/13, Judgment of February 3, 2015 – Follow-up on Marks & Spencer 

In case C-172/13 Commission v United Kingdom, the EU Commission initiated  proceedings against the United Kingdom for a violation of Article 49 TFEU and  Article 31 EEA Agreement due to the statutory measures the United Kingdom had  taken to implement the Marks & Spencer judgment. 

In case C-172/13 Commission v United Kingdom, the EU Commission initiated  proceedings against the United Kingdom for a violation of Article 49 TFEU and  Article 31 EEA Agreement due to the statutory measures the United Kingdom had  taken to implement the Marks & Spencer judgment. 

Although the British tax legislation enacted as a result of the Marks & Spencer  case now provides for a cross-border set-off of definitive losses, this is, inter alia,  contingent upon specific requirements:

  1. the determination that losses are definitive must be made immediately after the end of the tax year in which the losses were sustained, and 
  2. the claim for a set-off of losses must be made prior to the end of the year following the tax refund for the respective tax year (i.e. in practice at the la-test two years after the end of the tax year in which the definitive losses were sustained).

Accordingly, the British provisions determine the point in time in which it must be  assessed whether the losses sustained by a non-resident subsidiary are definitive  within the meaning of the Marks & Spencer judgment, namely "immediately after  the end" of the tax period in which the losses were sustained. 

Accordingly, the British provisions determine the point in time in which it must be  assessed whether the losses sustained by a non-resident subsidiary are definitive  within the meaning of the Marks & Spencer judgment, namely "immediately after  the end" of the tax period in which the losses were sustained. 

The ECJ did not agree with these arguments and dismissed the action filed by the  EU Commission: It is true that, applying the principle of vertical comparison, the  freedom of establishment (Article 49 TFEU) has been violated, because there is a  difference in treatment between losses sustained by resident subsidiaries and losses sustained by non-resident subsidiaries, and this difference in treatment can hinder the parent company from exercising its freedom of establishment by preven-ting it from establishing subsidiaries in other Member States. According to the ECJ, however, this difference in treatment is not relevant or may be justified, as the case may be. The requirement to claim losses in the parent company's state of resi-dence only immediately after the year in which the losses were sustained is not disproportionate, because any, even minimal, income realized by the non-resident subsidiary excludes that the losses qualify as definitive. Accordingly, the qualifica-tion of the losses as definitive ultimately requires that the non-resident subsidiary ceases trading.