The Week Ahead: British companies hold their breath over billions in tax relief

Tax always provokes strong opinions, and so it will be this week as companies and ministers alike await a crucial ruling from the European Court of Justice (ECJ). The court's Advocate-General is due to give his opinion on Thursday on a landmark case bought by Marks & Spencer, and this could have massive implications for the UK's tax regime.

Tax always provokes strong opinions, and so it will be this week as companies and ministers alike await a crucial ruling from the European Court of Justice (ECJ). The court's Advocate-General is due to give his opinion on Thursday on a landmark case bought by Marks & Spencer, and this could have massive implications for the UK's tax regime.

The case centres on "group relief", which enables companies to offset losses from one subsidiary against profits from another - but not in the UK. Should the Advocate-General say this imbalance is illegal, as expected, M&S could claim £30m of tax relief. The Government would face losing billions in revenues, as more than 100 companies have made comparable claims.

"Finance ministers throughout Europe are on tenterhooks as they await Thursday's opinion, which usually gives an indication of the final ECJ decision," said Adam Craig, head of EU tax at accountants Deloitte. "Tax rules are still largely for individual member states to decide. But states cannot enforce rules which interfere with the EU single market."

The other big news will come from the Bank of England when the Monetary Policy Committee makes its latest decision on interest rates. The Bank has become increasingly hawkish of late, with two members voting for a hike. But the news flow since then has been doveish, with retail sales, mortgage lending and house prices weakening. On balance, most economists are, therefore, expecting rates to be left on hold at 4.75 per cent, for April at least. The European Central Bank also meets, and again, most are predicting a hold at 2 per cent.

But the key debate is not about what happens this week but in the coming months. While some argue that the rate cycle has peaked, others are more cautious. David Smith, economist at broker Williams de Broë, said: "We suspect that the prospect for further UK rate changes may depend as much on overseas as domestic developments. A more aggressive tightening in the US, for example, would tend to be reflected in Britain because of its impact on sterling."

Other economic news includes the Halifax house price survey, which will be closely scrutinised following Nationwide's gloomy report. There will also be updates on the services and manufacturing sectors. As for the markets, traders coming back after the Easter break will find few companies reporting figures.

There will, however, be some key news, particularly at BP. The oil giant is due to release its first-quarter update tomorrow but it is likely to be overshadowed by the tragic events at its Texas refinery. Many were injured and 15 killed in the blast and investors will be looking for further comments, including possible causes, whether the company will be found negligent and the impact on output.

Elsewhere, and housebuilder Crest Nicholson holds its annual general meeting. The group will comment on current trading, but it is the recent takeover approach by Gerald Ronson's Heron International that is likely to dominate.

Otherwise, the focus will be on retail. Health and beauty chain Boots provides an update on sales ahead of its full-year results, due in May, and analysts are hoping for no more shocks. The group, stung by worsening conditions on the high street, warned on profits last month. The departure of finance director Howard Dodd was announced shortly afterwards, so investors will now want to hear how management intends to get the business back on track.

Jewellery group Signet continues to win fans, mainly because it straddles the UK, where it owns H Samuel and Ernest Jones, and the US, home to Kay Jewelers and Jared. So although Valentine's Day was subdued in the UK, that will have been offset by a strong performance Stateside. JP Morgan is predicting full-year earnings before interest and tax to rise 10 per cent to £221m.

Administrator Kroll will hold its first meeting for collapsed chain Allders, while overseas, Sweden's Hennes & Mauritz posts first-quarter numbers. Sales growth is likely to be sluggish, hit largely by a cold February. The quarter only accounts for 21 per cent of annual sales but, as Lehman Brothers said in a recent note: "We believe it is an important early indication of the year to come."

And finally, the week might be quiet, but it is at least April. Since the Second World War, this has been the best month for investors as prices traditionally push ahead before the slow days of summer. So keep buying now and then, as the saying goes: "Sell in May and go away, come back again on Leger Day" (in September). It's spring and your investments may bear fruit.

CALENDAR

Tomorrow 4

UK: Results: (finals) Alexon Group, DAT Group.

Tuesday 5

UK: Results: (F) Datacash Group, Havelock Europa, Severfield-Rowen, Whatman.

Wednesday 6

UK: Results: (F) CeNeS Pharmaceuticals, Gatekeeper Systems, Henry Boot, Intermediate Capital Group, James Beattie, Robotic Technology Systems, Signet Group; (interim) Charteris.

Thursday 7

UK: Results: (I) Air Partner, Chelford Group.

Friday 8

UK: Results: none scheduled.