The European Commission (EC) has publicly called on the UK government to implement a European Court of Justice (ECJ) decision which could see large payouts being made to thousands of firms who make losses on operations outside the UK.
In the famous Marks and Spencer case of 2005, the ECJ ruled that the British retailer should be allowed to offset its losses in France, Germany and Belgium against its group profits (including those profits from the UK), thereby nullifying an approximately £30m tax liability which would have arisen on the profits. HMRC had originally tried to disallow this.
The Treasury implemented the ECJ judgement, as they are required to, but the EC has now condemned the legislation in question as “unnecessarily restrictive”. The Chartered Institute of Taxation (CIOT) in the UK agrees, stating that the legislation “imposes conditions on cross border group relief which make it virtually impossible for taxpayers to benefit”.
The EC has warned that if the UK does not respond to this request within two months, the matter may be referred to the ECJ.