No tax refund flood seen after key EU ruling

By Jan Strupczewski and Michele Sinner

BRUSSELS/LUXEMBROUG (Reuters) – A landmark ruling on
corporate tax by the European Union’s top court on Tuesday gave
British retailer Marks & Spencer conditional rights to relief
on overseas losses but limited the financial impact on
governments.

The European Court of Justice ruled that Marks & Spencer
can claim tax relief on losses incurred outside its home market
but only when all possibilities of relief in the countries
where its subsidiaries trade have been exhausted.

A senior tax expert said the ruling was likely to cost
European treasuries hundreds of millions of euros rather than
the feared billions in refunds.

“It is quite narrow in its impact and implication, so I
think that at the moment the floodgates will not be opening,”
said Chas Roy-Chowdhury, Head of Taxation, at the Glasgow based
Association of Chartered Certified Accountants (ACCA).

The English High Court asked the ECJ for guidance after the
British government said Marks & Spencer could not offset losses
of its subsidiaries in other EU countries, even though it would
be allowed to do so if the subsidiaries were based in Britain.

The company said this was discriminatory and went against
its freedom to set up shop across the 25-nation bloc.

The keenly awaited judgment said the British provisions did
indeed constitute a restriction on the EU treaty right of
freedom to establish a business throughout the Union.

“Where in one Member State the resident parent company
demonstrates to the tax authorities that those conditions are
fulfilled, it is contrary to freedom of establishment to
preclude the possibility for the parent company to deduct from
its taxable profits in that Member State the losses incurred by
its non-resident subsidiary,” the court said in a statement.

TAX COORDINATION?

Both M&S and the British Treasury said they needed more
time to study the complex ruling.

The executive European Commission said the ruling showed
the need for a coordination of EU corporate tax systems that it
has long advocated against strong opposition from countries
such as Britain and Ireland.

In Germany, where officials had feared the ruling could
cost them tens of billions of euros, there was a sigh of
relief.

“The judgment is in line with expectations…There are no
grounds for budget experts to be worried,” said Alfons Kuhn,
tax expert of Germany’s chambers of commerce and industry
(DIHK).

He said he did not expect it to trigger change in the way
multinationals in Europe arrange themselves for tax purposes.

One EU diplomat called the ruling a “score draw.”

Scores of other British companies have claimed similar
relief to the M&S case but their hopes of a windfall from the
M&S precedent looked uncertain.

However, in a condition that may limit the impact of the
ruling on national treasuries, the Court said a company cannot
claim tax relief twice on the same losses — as a group across
the EU and within individual member states.

“Although this might be quite a good result for M&S, I
don’t think you can read a broad principle this will lead to
taxpayer success across the board. Each claimant is now having
to go back and look at its individual circumstances before it
can assess its prospects of success,” said Mark Persoff, senior
tax lawyer at Clifford Chance in London.

** For text of ECJ tax ruling, double click on

(Additional reporting by Huw Jones in Strasbourg, Elaine
Hardcastle in London, Nicholas Antonovics in Berlin and Paul
Taylor in Brussels)