Marks and Spencer win group relief case (again)
 

Marks and Spencer plc v Revenue & Customs [2009] UKFTT 00005

On 2 April 2009 the UK First Tier Tribunal (Tax), the successor to the UK Special Commissioners handed down its decision on Marks and Spencer’s (M&S) entitlement to group relief for losses incurred by German and Belgian subsidiaries. The well known retailer was before the tribunal to determine, following its UK Court of Appeal outing in 2007, whether valid claims had been submitted and the quantum of losses available for relief.

In its 2005 judgment, the European Court of Justice (ECJ) had determined that group relief was only available if there was no possibility of using the losses in any other manner. The Court of Appeal had confirmed that this ‘no possibilities’ test was a test of ‘real possibilities’; a real possibility being one ‘which cannot be dismissed as fanciful’. It confirmed that the test should be applied at the time of making the claims. Following this decision M&S had lodged second (alternative) claims as by that time the overseas subsidiaries had ceased trading and were in liquidation. At the time of the original claims it had only been decided to cease trading.

The Tribunal noted that losses could technically be used by overseas liquidators to offset income arising in liquidation but that the fact that a liquidator could make a profitable investment that used some losses was considered ‘fanciful’ given the liquidator’s duties. The possibility of terminating the liquidation and re-launching the business was also dismissed as fanciful. The tribunal concluded that the first claims, made before the companies were in liquidation, were invalid as the ‘no possibilities’ test was not satisfied at that time. While the ‘no possibilities’ test was met at the time of the later claims, the question to be addressed was then whether such later claims were permissible, the claims being made outside the normal time limits under self-assessment for making such claims.

In the UK there was a six year time limit for group relief claims and they required the consent of surrendering companies. The tribunal felt that since the ‘no possibilities’ test ensured that the losses couldn’t be used elsewhere, the surrender was something of a formality. If relevant, the liquidators should perhaps be permitted to make the surrenders (even after dissolution) but the tribunal preferred the conclusion that the claimant could have consented to the surrender on behalf of the subsidiaries. On time limits two streams of UK case law were noted.

The first line of cases rely on the principle of legal certainty where a person fails to assert a legal right within a domestic law time limit that right is lost. However, this is subject to time limits not making it ‘virtually impossible or excessively difficult’ to exercise Community law rights. The second line of caselaw concerns the introduction of time limits without transitional provisions.

M&S had made a claim within domestic time limits to assert a Community right. The ECJ had upheld the right but in a narrower form than expected, resulting in the original claim being defective. Would the ECJ have considered any refusal to extend time limits to re-exercise claims to be a breach of the principle of effectiveness? The tribunal thought so, noting that this was a transitional issue for the early claimants.

Finally, it was agreed that the overseas losses must be initially determined under the overseas rules to determine if any of the losses can be used. Any remaining losses were to be converted into sterling and recomputed in accordance with UK tax principles.

Ireland implemented the ECJ decision in M&S in 2007. It allows Irish companies to claim group relief for ‘trapped losses’ incurred by 75% subsidiaries resident in EU Member States (plus Iceland and Norway). This legislation recognises that a claimant may be unable to prove that losses cannot possibly be used in a future period. Where losses cease to be capable of being carried forward, the Irish provision permits a claim to be made within two years of the event giving rise to the inability to carry forward the losses. The Irish provisions also require the overseas losses to be computed in accordance with the laws of the surrendering country.