Marks & Spencer plc v Halsey
A member state must allow a parent company to set off losses of a foreign subsidiary against its profits where the subsidiary has exhausted all possibilities of using the losses in its own state.
Facts
Marks & Spencer had subsidiaries in Belgium, France and Germany, which made losses and ceased trading. It claimed group relief in the UK for the losses of the foreign subsidiaries, to set against its profits. Under the UK legislation, group relief was available only for losses of subsidiaries resident or trading in the UK. Marks & Spencer argued that the restriction was contrary to the freedom of establishment, and the Special Commissioners referred questions to the Court of Justice.
Legal principle
The Court of Justice held that the UK rules restricted the freedom of establishment, but that the restriction could in principle be justified by the need to preserve the allocation of taxing powers between member states, to prevent losses being used twice, and to prevent tax avoidance. However, the restriction went beyond what was necessary where the non resident subsidiary had exhausted the possibilities available in its state of residence of having the losses taken into account, for the current, previous or future periods, and there was no possibility of the losses being taken into account in that state in future. In such a case, the parent company must be allowed to deduct the losses. The UK legislation was later amended to give effect to the ruling.
Related cases on income and corporation tax: employment, trading and residence
- Edwards v Bairstow [1956] AC 14
- Hochstrasser v Mayes [1960] AC 376
- Jones v Garnett [2007] UKHL 35
- Mallalieu v Drummond [1983] 2 AC 861
- Pepper v Hart [1993] AC 593
- R (Gaines-Cooper) v Revenue and Customs Commissioners [2011] UKSC 47
- RFC 2012 plc v Advocate General for Scotland [2017] UKSC 45
- Shilton v Wilmshurst [1991] 1 AC 684
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