M&S group relief: Fiscal meltdown fears 'unfounded'

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Fears of a European Court decision prompting EU-wide "fiscal meltdown" are likely to be unfounded, according to experts at Chiltern, the professional services group.

The ECJ Advocate General issued his Opinion in the Marks & Spencer group relief case on 7 April.

He recommended that M&S should be allowed to claim UK tax relief for losses incurred in subsidiaries in other EU countries. Many commentators believe that the European Court of Justice will follow his recommendation.

Chiltern said: "This decision could well lead to the government being forced to make tax refunds running into hundreds of millions, if not billions of pounds, as many UK-based companies with overseas subsidiaries have already submitted similar claims.

"Many commentators have speculated on what the Inland Revenue's reaction...

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12th Apr 2005 12:00

Another success for the tax avoidance industry
Why should M&S, having disastrously invested overseas, have those losses offset against profits they have made in the UK? Why should the UK taxpayer be disadvantaged because M&S can't manage their overseas affairs?

As anyone who has ever written a software program knows, no matter how carefully you frame your code there is always some user out there who will find a way to use it that you did not think of.

The government needs to introduce a concept of "evasion through avoidance" where any activity that is not clearly indicated in law as acceptable for mitigating tax liability is deemed to be evasion unless the practitioners can prove that the avoidance is a fair and reasonable action within the spirit of the law.

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08th Apr 2005 14:20

'Enormous implications'
The ICAEW Tax Faculty said the Advocate General's opinion "will have enormous implications for the UK and the other Member States if it is followed by the European Court of Justice itself when it delivers is judgement. This is now expected in October."

It added: "In his conclusion the Advocate-General states:

'Articles 43 and 48 EC preclude the tax legislation of a Member State, such as that at issue in the main proceedings, which prohibits a parent company established in a Member State from benefiting from the right to group relief on the ground that its subsidiaries are established in other Member States, whereas that relief would be granted if those subsidiaries were resident in that Member State.'

"The Advocate-General went on, however, to opine that Articles 43 and 48 do not preclude national legislation from making entitlement to group relief subject to the condition that it is established that the losses of subsidiaries resident in other Member States cannot be accorded 'equivalent tax treatment' in those Member States. However, the UK legislation does not currently contain any such provision.

"The Advocate-General considers that 'equivalent tax treatment' is where the losses of foreign subsidiaries are either capable of being transferred (to another legal person) or carried forward in the state of establishment.

"Earlier in the week Michel Aujean, Director of Tax Policy and Analysis, at the European Commission, wrote to the President of FEE (Fédération des Experts Comptables Européens) in relation to the FEE paper on cross border losses which was submitted to the Commission in January 2005. Mr Aujean considers that the provision of a solution to the lack of [relief for] cross-border losses within the European Union is one of the most pressing matters within the internal market."

Andrew Goodall
Editor, TaxZone

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