M&S wins case on foreign tax relief

Marks & Spencer won conditional approval to claim tax relief in Britain on losses made by foreign subsidiaries yesterday in a landmark European court case.

The judgment by the European Court of Justice could pave the way for similar claims for relief in Ireland, a factor that led the Government to join seven other states in the case to oppose the retailer's claim.

However, tax experts said conditions attached to the judgment would limit the negative impact on the Irish exchequer to millions, rather than hundreds of millions of euro. Mary Walsh, partner with PricewaterhouseCoopers, said the judgment was a low-cost solution, as parent firms based in the Republic would only be able to claim tax relief when they had exhausted all attempts to claim the relief in the state where its subsidiaries were based. For example, a parent firm based in Ireland could apply for relief on activities of EU subsidiaries if they went out of business or if the host state had a time limit set for claiming relief on losses, said Ms Walsh.

EU governments had expressed fears to the court that they could face claims for billions of euro if the court ruled unconditionally in favour of Marks & Spencer. It was even feared that the impact on member states' coffers, particularly Germany and France, would make it even more difficult to control their large budget deficits.

The English High Court had asked the European court for guidance after the British government said Marks & Spencer could not offset losses to its subsidiaries in other EU countries, even though it would be allowed to do so if the subsidiaries were based in Britain. The company said this was discriminatory and went against EU rules. Ireland and Germany, France, the Netherlands, Finland, Greece and Sweden had submitted comments supporting the British position to the court. The European Commission welcomed the judgment and said it sent a message to states that it was better to co-operate on tax issues.

Meanwhile, a hearing in a separate tax case with implications for Ireland began yesterday in Luxembourg. The case involves Cadbury Schweppes, which is appealing a British law that forces its Irish subsidiary to pay tax on its profits to the British exchequer. The case is significant for Ireland because it will determine if attempts by other EU states to claw-back tax from Irish-based subsidiaries is allowed.