The European Commission has referred the UK to the ECJ for failing to implement the judgment in M&S (C-446/03) in its domestic legislation adequately. The reference follows a reasoned opinion from the Commission in September 2008, which requested the UK to properly implement the ruling in M&S, and an earlier reference to the CJEU on this matter in October 2009 which was not pursued to hearing.

The CJEU’s judgment of 13 December 2005 in M&S found that in certain cases the UK’s cross-border group relief provisions could be a restriction on the EC freedom of establishment. Relief should be given where loss making subsidiaries had no possibility of utilising those losses in the Member State in which the non-resident is established. Since this ruling, it has remained almost impossible for multinationals to recover losses made by a subsidiary in another Member State due to the stringent conditions for recovery imposed by the UK. The Finance Act 2006 was intended to implement the decision in M&S, but the UK’s interpretation of the no possibilities test, including the date for satisfying the test and the losses relief applies to, proved a barrier to obtaining relief. The Commission made its current reference on 27 September 2012, contending that the UK’s failure to implement successfully the decision in M&S is incompatible with the Treaty, as it infringes the freedom of establishment and principle of non-discrimination.