InEuropean Commission v UK(C-172/13) (3 February 2015), the CJEU found that the UK legislation on cross-border group relief complies with EU law principles.
InEuropean Commission v UK(C-172/13) (3 February 2015), the CJEU found that the UK legislation on cross-border group relief complies with EU law principles.
The European Commission was applying for a declaration by the CJEU that CTA 2010 s 119(4) makes it virtually impossible in practice to obtain cross-border group relief, so that the UK has failed to fulfil its obligations under TFEU arts 31 and 49.
Cross-border group relief is only available if the ‘no possibilities test’ is satisfied; that is, if the losses are not relievable in the country where the loss-making subsidiary is established. Under CTA 2010 s 119(4), the determination as to whether losses may be taken into account in the future must be made ‘as at the time immediately after the end’ of the accounting period in which the losses were sustained. According to the Commission, cross-border relief can therefore only be available if either carry forward of losses is not possible under the legislation of the country of residence of the subsidiary; or if the subsidiary is liquidated at that time.
However, the CJEU observed that the first situation mentioned by the Commission was irrelevant for the purpose of assessing the proportionality of s 119(4). In such a situation, the member state in which the parent company is resident may not allow cross-border group relief without thereby infringing art 49 (K C-322/11). As for the second situation, the CJEU considered that s 119(4) does not require the subsidiary to be put into liquidation before the end of the accounting period in which the losses were sustained. The provision only imposes a requirement to make an ‘assessment’ at that time.
The Commission also submitted that the UK was in breach of TFEU arts 49 and 31 in that its legislation precludes cross-border group relief for losses sustained before 1 April 2006. The CJEU found, however, that the Commission had not established the existence of situations in which cross-border group relief for losses sustained before 1 April 2006 was not granted.
Why it matters: By confirming that the UK legislation on cross-border group relief is now compliant with the EU law principles of freedom of establishment and of movement of capital, the CJEU’s decision may have come as a disappointment to some international groups.
Rupert Shiers (partner and head of direct tax disputes at Hogan Lovells) observed: 'If "no possibilities" is assessed immediately after the end of the accounting period, under current legislation there will be few valid claims. But the CJEU decision is only that the Commission failed to prove its case. And there is tension to resolve with the Supreme Court decision in Marks and Spencer [2013] UKSC 30, that for pre April 2006 losses "no possibilities" is assessed at the date of claim.'
InEuropean Commission v UK(C-172/13) (3 February 2015), the CJEU found that the UK legislation on cross-border group relief complies with EU law principles.
InEuropean Commission v UK(C-172/13) (3 February 2015), the CJEU found that the UK legislation on cross-border group relief complies with EU law principles.
The European Commission was applying for a declaration by the CJEU that CTA 2010 s 119(4) makes it virtually impossible in practice to obtain cross-border group relief, so that the UK has failed to fulfil its obligations under TFEU arts 31 and 49.
Cross-border group relief is only available if the ‘no possibilities test’ is satisfied; that is, if the losses are not relievable in the country where the loss-making subsidiary is established. Under CTA 2010 s 119(4), the determination as to whether losses may be taken into account in the future must be made ‘as at the time immediately after the end’ of the accounting period in which the losses were sustained. According to the Commission, cross-border relief can therefore only be available if either carry forward of losses is not possible under the legislation of the country of residence of the subsidiary; or if the subsidiary is liquidated at that time.
However, the CJEU observed that the first situation mentioned by the Commission was irrelevant for the purpose of assessing the proportionality of s 119(4). In such a situation, the member state in which the parent company is resident may not allow cross-border group relief without thereby infringing art 49 (K C-322/11). As for the second situation, the CJEU considered that s 119(4) does not require the subsidiary to be put into liquidation before the end of the accounting period in which the losses were sustained. The provision only imposes a requirement to make an ‘assessment’ at that time.
The Commission also submitted that the UK was in breach of TFEU arts 49 and 31 in that its legislation precludes cross-border group relief for losses sustained before 1 April 2006. The CJEU found, however, that the Commission had not established the existence of situations in which cross-border group relief for losses sustained before 1 April 2006 was not granted.
Why it matters: By confirming that the UK legislation on cross-border group relief is now compliant with the EU law principles of freedom of establishment and of movement of capital, the CJEU’s decision may have come as a disappointment to some international groups.
Rupert Shiers (partner and head of direct tax disputes at Hogan Lovells) observed: 'If "no possibilities" is assessed immediately after the end of the accounting period, under current legislation there will be few valid claims. But the CJEU decision is only that the Commission failed to prove its case. And there is tension to resolve with the Supreme Court decision in Marks and Spencer [2013] UKSC 30, that for pre April 2006 losses "no possibilities" is assessed at the date of claim.'
