As correctly forecast by The Times on Monday, Marks & Spencer has cleared the first hurdle in its bid to overturn a ruling by the UK tax authorities after the advocate general at the ECJ today issued an opinion in its favour.
The case could cost the Treasury an estimated £5 billion in tax relief if, as is widely expected, the full court agrees with the advocate. Says the Financial Times, it could also have ripple effects across all EU governments to harmonise the tax treatment of losses at domestic and foreign subsidiaries.
In his opinion, advocate general, Poiares Maduro, wrote: "A group relief scheme which does not allow a parent company to deduct the losses of its subsidiaries established abroad under any circumstances is incompatible with community law."
The advocate general also wrote that the refusal of a tax advantage that could be enjoyed by a parent company operating solely within the UK to a parent company that wished to operate overseas subsidiaries had the effect of obstructing a company freedom of establishment in other member states.
The case was passed up to the ECJ by the High Court, which was hearing M&S appeal against a ruling made by the Special Commissioners tribunal, the starting point for all direct tax challenges.