We have a new instalment in the long-running saga of the Marks & Spencer (M&S) European losses. It may be remembered that M&S were denied group loss relief in respect of their European subsidiaries on the basis that they were not UK resident. They would have been entitled to relief had the subsidiaries been UK resident, and this was held by the European Court of Justice to be discriminatory and a breach of the EC Treaty; loss relief should have been allowed. After a few more court hearings, it was concluded that loss relief could be given only if the subsidiary had exhausted all possibilities for relief in its home state. Of course, that was impossible, because you could never rule out the possibility of profits arising at some time in the future. You could if you wound the company up, but if you did that, HMRC said that this would be regarded as a disqualifying event, and the loss would no longer be available for relief anyway.
Many people expressed the view that this approach meant that despite the ECJ ruling, relief for the losses was being denied unfairly, having regard to the clarity of the ECJ judgement that to deprive M&S of relief was contrary to the EC Treaty. However, that’s life – or so we thought.
I cannot, therefore, resist a smile at the European Commission press release of 18 September, which reveals that the EC has sent the UK a formal request to implement the ECJ judgement in Marks & Spencer. They say that in the legislation that was supposed to implement the M&S ruling, the UK imposes conditions on cross-border group relief that make it virtually impossible for taxpayers to benefit from the relief. The Commission considered that this is contrary to the EC Treaty as well.
The EC say that if the UK does not reply satisfactorily to this request within two months, the Commission may refer the matter to the ECJ. It may be that nothing much will happen, but this looks promising. Stay tuned.