Linklaters Hot Topic – LAWFUEL – The Law News Network –
The ECJ’s timetable indicates that it will deliver judgment on one of the most important tax cases in decades on 13 December 2005.
What is the appeal about?
The appeal by Marks & Spencer Plc turns on the question whether, under EU law principles, the losses suffered by French and Belgian subsidiaries can be set off against the taxable profits of the UK parent.
Why is it important?
Many tax systems only allow corporate groups to set off profits and losses incurred in the same country. Estimates have put the amount of tax at stake across the EU in the region of £20 billion, although no one knows the real figure for certain.
What’s the story so far?
On 7 April 2005 the ECJ’s advocate-general delivered an opinion which was broadly in favour of Marks & Spencer. Now the decision of the full court is awaited – with some trepidation – by tax authorities and multi-national groups across Europe.
What are the implications? Guy Brannan, Linklaters head of tax, said:
“The decision, if it goes in favour of Marks & Spencer, could have profound implications for the shape of European tax systems. Member states, such as the UK, could lose billions of tax revenue if they allow non-UK tax losses to wipe UK taxable profits. Therefore it may prompt the UK to scrap the system of allowing one company to set off its losses against another company’s profits altogether. This would cost corporate groups operating in the UK huge amounts of tax. Alternatively, it may boost calls for the corporate tax base across the EU to be harmonised – something the UK government has strongly resisted so far.
“If the UK tax authorities win the appeal the tax system can stay unchanged, but the decision may influence the ECJ’s thinking on other tax appeals – also involving billions in tax – which are currently pending before it.”