A recent UK Supreme Court judgment provides clarity on the method of calculating UK claims for cross-border loss relief in Europe. This should bring to an end a long drawn-out saga between HMRC and Marks & Spencer (M&S), in respect of the use of cross-border losses.
The case centered on a claim made over a decade ago by the M&S UK business to offset losses, incurred by two of its failed European subsidiaries, against its UK corporation tax liability.
The UK Supreme Court delivered judgment on the 19 February 2014 on three specific issues:
- The Supreme Court held unanimously that M&S was entitled to make cumulative or sequential claims for the same losses in respect of the same accounting period, provided not already time-barred under the existing domestic rules.
- The Court held that M&S would be allowed to make fresh ‘pay and file’ claims, but only if not time-barred. The Court held that M&S were in fact time-barred and so the appeal was struck down.
- The correct method for calculating overseas losses was held by the Court to be that submitted by M&S. They must first apply local rules of the relevant Member State in order to determine the sums of unutilized losses, and then convert these sums to UK principles for the purposes of calculating group relief.
This decision represents good news for UK corporates with overseas subsidiaries, who should now be able to claim UK tax relief more freely, where those subsidiaries suffer losses which cannot be utilised locally in the current period, a prior period or a future accounting period.
This case shows that claims for cross-border loss relief should be made as promptly as possible to avoid the possibility of becoming time-barred.