M&S tax victory will cause `grave dangers'

A VICTORY for Marks & Spencer in its claim that British tax rules illegally discriminate against companies operating in Europe would cause a "grave danger" to the efficiency and fairness of the UK tax system, Inland Revenue lawyers said yesterday.

Tax experts believe the case, in which M&S argues it should be able to reduce its tax bill by offsetting losses incurred on the Continent, could have widespread ramifications for UK companies as well as tax policy in other EU states.

At the first hearing of the case in the European Court of Justice in Luxembourg yesterday, M&S lawyers argued that UK tax laws breach EU rules on being able to invest freely in other countries.

The retailer wants pounds 30m off its tax bill from losses of pounds 100m arising from its disastrous expansion into France, Belgium, Spain and Germany. UK tax rules state that only losses from UK-based subsidiaries can be offset against the group's profits, which M&S says is prejudicial to cross- border investment in the EU.

Graham Aaronson QC, for Marks & Spencer, told the hearing: "The national rules plainly infringe the principle of freedom of establishment and are a very serious obstacle to the internal market." M&S said the UK and other governments oppose the tax relief because they do not want to lose out on revenue.

The Inland Revenue argued that allowing losses made outside the UK to be offset would lead companies deduct losses in low-tax countries to offset gains in higher-tax ones. "It would create a new distortion that would prevent the EU from benefiting from the internal market," said Richard Plender QC, for the Inland Revenue, warning of "grave dangers" to the system.

If M&S wins, hundreds of cases across the EU are expected to come to court. A group of about 60 companies including BT, Carphone Warehouse and Ford, is waiting in the wings for the outcome of the M&S case, hoping for tax rebates of as much as pounds 20bn. This may mean the Government stops companies offsetting losses even from its UK subsidiaries, known as the "group relief" rule. Charles Elphicke, of the solicitors' firm Reed Smith, said: "If M&S win the case, it will almost certainly mean the abolition of group relief for companies in the short term while a longer-term solution is considered.

"This would be a disaster for most companies in the UK that have profit- and loss-making companies in the same group. M&S and others may think they are clever in getting a windfall, but they are likely to bring the house down on a system that works well for UK businesses."

If companies are allowed to recoup taxes from losses made in other countries, the Government will want to change the law so that it can also claim tax on a foreign subsidiary's profits. Chris Morgan, the head of European tax for KPMG, said: "Otherwise the Government would be subsidising investment in to other countries without getting any upside in revenues from it."

A ruling in the case is expected in three months.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent