Key tax ruling backs M&S

A landmark ruling on corporate tax by the European Union's top court yesterday gave 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 High Court asked the ECJ for guidance after the 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 judgement 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.

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.