Advocate General Kokott’s opinion has been published on the European Commission’s action against the UK for failing to properly implement the decision in the Marks & Spencer cross-border group relief case.
Advocate General Kokott’s opinion has been published on the European Commission’s action against the UK for failing to properly implement the decision in the Marks & Spencer cross-border group relief case. The AG concluded that the UK is justified in principle not only in imposing stricter requirements for taking account of losses resulting from the foreign activity of foreign subsidiaries, but also in excluding them entirely from loss relief. The opinion suggests that the change in UK law which followed the Marks & Spencer case was not necessary.
Commenting on the opinion, Chris Morgan, head of tax policy at KPMG in the UK, said: ‘In the original M&S case, the CJEU found that a UK company investing in a foreign EU subsidiary was objectively comparable to a UK company investing in a UK subsidiary. Therefore the principle of freedom of establishment in the EU treaty meant there should be no discrimination between the two cases because as a UK parent company could claim tax relief for the losses of its UK subsidiary it meant it should also be able to claim losses from a foreign subsidiary. However in order to protect the UK tax base the court said cross-border relief should only be available if the loss could not be used in the foreign country.
‘Advocate general Kokott now wants the court to overturn its original ruling. She thinks that a UK company investing overseas is not in the same position as one investing in the UK and so can be subject to different rules – in this case barred from ever using the losses of a subsidiary. However, if this reasoning was true, it would go against a long line of cases concerning outward investment and would effectively open up the door to discrimination in cross border cases.
‘It is ironic that while the new EU Commission is stating very firmly there will be no back tracking on the freedom of movement of workers and immigration as this is a fundamental right under EU law, an official of the European Court is suggesting the freedom of establishment should be restricted.’
Deloitte reports that ‘in her view, even the complete refusal of loss relief for a non-resident subsidiary satisfies the principle of proportionality; thus the UK’s 2005 amendments to the group relief rules went beyond what was required by EU law, as they allow for the possibility of cross-border relief in certain cases. This argument is consistent with her opinion in A Oy in which she suggested that scope of Marks & Spencer had been restricted by the CJEU’s later decisions. The CJEU declined to follow her reasoning in that case. It remains to be seen whether it will do so in this instance.’
Advocate General Kokott’s opinion has been published on the European Commission’s action against the UK for failing to properly implement the decision in the Marks & Spencer cross-border group relief case.
Advocate General Kokott’s opinion has been published on the European Commission’s action against the UK for failing to properly implement the decision in the Marks & Spencer cross-border group relief case. The AG concluded that the UK is justified in principle not only in imposing stricter requirements for taking account of losses resulting from the foreign activity of foreign subsidiaries, but also in excluding them entirely from loss relief. The opinion suggests that the change in UK law which followed the Marks & Spencer case was not necessary.
Commenting on the opinion, Chris Morgan, head of tax policy at KPMG in the UK, said: ‘In the original M&S case, the CJEU found that a UK company investing in a foreign EU subsidiary was objectively comparable to a UK company investing in a UK subsidiary. Therefore the principle of freedom of establishment in the EU treaty meant there should be no discrimination between the two cases because as a UK parent company could claim tax relief for the losses of its UK subsidiary it meant it should also be able to claim losses from a foreign subsidiary. However in order to protect the UK tax base the court said cross-border relief should only be available if the loss could not be used in the foreign country.
‘Advocate general Kokott now wants the court to overturn its original ruling. She thinks that a UK company investing overseas is not in the same position as one investing in the UK and so can be subject to different rules – in this case barred from ever using the losses of a subsidiary. However, if this reasoning was true, it would go against a long line of cases concerning outward investment and would effectively open up the door to discrimination in cross border cases.
‘It is ironic that while the new EU Commission is stating very firmly there will be no back tracking on the freedom of movement of workers and immigration as this is a fundamental right under EU law, an official of the European Court is suggesting the freedom of establishment should be restricted.’
Deloitte reports that ‘in her view, even the complete refusal of loss relief for a non-resident subsidiary satisfies the principle of proportionality; thus the UK’s 2005 amendments to the group relief rules went beyond what was required by EU law, as they allow for the possibility of cross-border relief in certain cases. This argument is consistent with her opinion in A Oy in which she suggested that scope of Marks & Spencer had been restricted by the CJEU’s later decisions. The CJEU declined to follow her reasoning in that case. It remains to be seen whether it will do so in this instance.’
