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12.01.2006, 11:42 #1
Breaking News! СУД ЕС ВЫНЕС РЕШЕНИЕ В ПОЛЬЗУ МАРКС ЭНД СПЕНСЕР по делу С-446/03JUDGMENT OF THE COURT (Grand Chamber)
13 December 2005 (*)
(Articles 43 EC and 48 EC – Corporation tax– Groups of companies – Tax relief – Profits of parent companies – Deduction of losses incurred by a resident subsidiary– Allowed – Deduction of losses incurred in another Member State by a non-resident subsidiary – Not included)
In Case C-446/03,
REFERENCE for a preliminary ruling under Article 234 EC from the High Court of Justice of England and Wales, Chancery Division (United Kingdom), made by decision of 16 July 2003, received at the Court on 22 October 2003, in the proceedings
Marks & Spencer plc
David Halsey (Her Majesty’s Inspector of Taxes),
THE COURT (Grand Chamber),
composed of V. Skouris, President, P. Jann, C.W.A. Timmermans and A. Rosas, Presidents of Chambers, C. Gulmann (Rapporteur), A. La Pergola, J.‑P. Puissochet, R. Schintgen, N. Colneric, J. Klučka, U. Lõhmus, E. Levits and A. Ó Caoimh, Judges,
Advocate General: M. Poiares Maduro,
Registrar: K. Sztranc, Administrator,
having regard to the written procedure and further to the hearing on 1 February 2005,
after considering the observations submitted on behalf of:
– Marks & Spencer plc, by G. Aaronson QC and P. Farmer, Barrister,
– the United Kingdom Government, by M. Bethell, acting as Agent, with R. Plender QC and D. Ewart, Barrister,
– the German Government, by W.-D. Plessing and A. Tiemann, acting as Agents,
– the Greek Government, by K. Boskovits and V. Kyriazopoulos, and also by I. Pouli and S. Trekli, acting as Agents,
– the French Government, by G. de Bergues and C. Jurgensen-Mercier, acting as Agents,
– Ireland, by D.J. O’Hagan, acting as Agent, with E. Fitzsimons SC and G. Clohessy, BL,
– the Netherlands Government, by H.G. Sevenster, S. Terstal and J. van Bakel, acting as Agents,
– the Finnish Government, by A. Guimaraes-Purokoski, acting as Agent,
– the Swedish Government, by A. Kruse, acting as Agent,
– the Commission of the European Communities, by R. Lyal, acting as Agent,
after hearing the Opinion of the Advocate General at the sitting on 7 April 2005,
gives the following
1 This reference for a preliminary ruling concerns the interpretation of Articles 43 EC and 48 EC.
2 The request was submitted in proceedings between Marks & Spencer plc (‘Marks & Spencer’) and the United Kingdom tax authority concerning the latter’s rejection of a claim for tax relief by Marks & Spencer, which sought to deduct from its taxable profits in the United Kingdom losses incurred by its subsidiaries established in Belgium, Germany and France.
National legal context
3 The provisions of national law applicable in the main proceedings are to be found in the Income and Corporation Taxes Act 1988 (‘the ICTA’). They are set out below on the basis of the information provided in the decision for reference.
Liability to corporation tax
4 Under sections 6(1) and 11(1) of the ICTA, corporation tax is charged on the profits of companies which are resident in the United Kingdom or which conduct trading activities in the United Kingdom through a branch or agency.
5 Under section 8(1) of the ICTA, resident companies are charged to corporation tax in respect of their worldwide profits. Under section 11(1), non-resident companies are charged to corporation tax only in respect of the profits attributable to their United Kingdom branches or agencies.
6 Under taxation conventions between the United Kingdom and, in particular, Belgium, Germany and France, the foreign subsidiaries of resident companies, as non-resident companies, fall within the scope of United Kingdom corporation tax in respect of their trading activities only if those activities are conducted in the United Kingdom through a permanent establishment within the meaning of those Conventions.
7 A tax credit system of relieving double taxation is provided for in the United Kingdom.
8 That system has, in particular, the following two aspects.
9 First, a company established in the United Kingdom which conducts trading activities in another Member State through a branch in that State is taxed in the United Kingdom on the profits of that subsidiary and deducts from the tax payable the tax paid in the other Member State, or is allowed to deduct that tax when calculating branch profits or losses in the United Kingdom. The branch trading profits are calculated on United Kingdom tax principles. If a trading loss arose that loss could be set against the profits of the company established in the United Kingdom. Any unrelieved loss may be carried forward to subsequent periods. The fact that the loss may also be relieved in the other Member State against the branch’s future profits does not affect the relief against United Kingdom profits.
10 Second, a company established in the United Kingdom which conducts trading activities in another Member State through a subsidiary established in that State is taxed in the United Kingdom on the dividends paid by that subsidiary and credit is given for the tax paid in the other Member State on the profits out of which the dividend is paid and for any withholding tax. Where controlled foreign company legislation is not applicable, the parent company is not taxed on its non-resident subsidiary’s profits and it cannot set the subsidiary’s losses against its own profits.
11 Under section 208 of the ICTA, dividends received by a parent company established in the United Kingdom from a subsidiary also established in that Member State are not taxed, unlike those paid by a subsidiary established in another Member State.
Group relief for losses
12 In the United Kingdom, group relief allows the resident companies in a group to offset their profits and losses among themselves.
13 Section 402 of the ICTA provides:
‘(1) Subject to and in accordance with this Chapter and section 492(8), relief for trading losses and other amounts eligible for relief from corporation tax may, in the cases set out in subsections (2) and (3) below, be surrendered by a surrendering company (“the surrendering company”) and, on the making of a claim by another company (“the claimant company”) may be allowed to the claimant company by way of relief from corporation tax called group relief.
(2) Group relief shall be available in a case where the surrendering company and the claimant company are both members of the same group …”
14 Section 403 of the ICTA provides that:
‘(1) If in an accounting period (“the surrender period”) the surrendering company has –
(a) trading losses … the amount may, subject to the provisions of this Chapter, be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period.’
15 As regards the accounting periods ending before 1 April 2000, section 413(5) of the ICTA states:
‘References in this Chapter to a company apply only to bodies corporate resident in the United Kingdom …’
16 Following a change in the law consequent upon the judgment of the Court of 16 July 1998 in Case C-264/96 ICI  ECR I-4695, group relief has since 2000 been applicable to profits and losses within the scope of United Kingdom tax law.
17 As a consequence of that change in the law:
– losses made by a United Kingdom branch of a non-resident company may be surrendered to another group company for offset against its United Kingdom taxable profits;
– losses made by a group company established in the United Kingdom may be surrendered to the branch for offset against its profits in the United Kingdom.
Main proceedings and questions referred for a preliminary ruling
18 Marks & Spencer is a company incorporated and registered in England and Wales. It is the parent company of a number of companies established in the United Kingdom and in other States. It is one of the leading United Kingdom retailers of clothing, food, homeware and financial services.
19 From 1975 Marks & Spencer began to move into other States, with the opening of a store in France. By the end of the 1990s it had sales outlets in more than 36 countries, with a network of subsidiaries and a system of franchises.
20 A trend towards increasing losses became evident in the mid-1990s.
21 In March 2001 Marks & Spencer announced its intention to divest itself of its Continental European activity. By 31 December 2001 the French subsidiary had been sold to third parties, while the other subsidiaries, including those established in Belgium and Germany, had ceased trading.
22 In the United Kingdom, Marks & Spencer claimed group tax relief pursuant to paragraph 6 of Schedule 17A to the ICTA in respect of losses incurred by its subsidiaries in Belgium, Germany and France for the four accounting periods ended 31 March 1998, 31 March 1999, 31 March 2000 and 31 March 2001. It is clear from the file before the Court that both parties to the main proceedings agree that the losses must be computed on a United Kingdom tax basis. At the tax authority’s request, Marks & Spencer therefore recomputed the losses on that basis.
23 Each of the subsidiaries had operated in the Member State in which it had its registered office. The subsidiaries had no permanent establishment in the United Kingdom and had never traded there.
24 The claims for relief were rejected on the ground that group relief could only be granted for losses recorded in the United Kingdom.
25 Marks & Spencer appealed against that refusal before the Special Commissioners of Income Tax, which dismissed the appeal.
26 Marks & Spencer appealed against that decision before the High Court of Justice of England and Wales, Chancery Division, which decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1) In circumstances where:
– Provisions of a Member State, such as the United Kingdom provisions on group relief, prevent a parent company which is resident for tax purposes in that State from reducing its taxable profits in that State by setting off losses incurred in other Member States by subsidiary companies which are resident for tax purposes in those States, where such set off would be possible if the losses were incurred by subsidiary companies resident in the State of the parent company;
– The Member State of the parent company:
– subjects a company resident within its territory to corporation tax on its total profits, including the profits of branches in other Member States, with arrangements for the availability of double taxation relief for those taxes incurred in another Member State and under which branch losses are taken account of in those taxable profits;
– does not subject the undistributed profits of subsidiaries resident in other Member States to corporation tax;
– subjects the parent company to corporation tax on any distributions to it by way of dividend by the subsidiaries resident in other Member States while not subjecting the parent company to corporation tax on distributions by way of dividend by subsidiary companies resident in the State of the parent;
– grants double taxation relief to the parent company by way of a credit in respect of withholding tax on dividends and foreign taxes paid on the profits in respect of which dividends are paid by subsidiary companies resident in other Member States
is there a restriction under Article 43 EC, in conjunction with Article 48 EC? If so, is it justified under Community law?
2) (a) What difference, if any, does it make to the answer to Question 1 that, depending on the law of the Member State of the subsidiary, it is or may be possible in certain circumstances to obtain relief for some or all of the losses incurred by the subsidiary against taxable profits in the State of the subsidiary?
(b) If it does make a difference, what significance, if any, is to be attached to the fact that:
– a subsidiary resident in another Member State has now ceased trading and, although there is provision for loss relief subject to certain conditions in that State, there is no evidence that in the circumstances such relief was obtained;
– a subsidiary resident in another Member State has been sold to a third party and, although there is provision under the law of that State for the losses to be used under certain conditions by a third party purchaser, it is uncertain whether they were so used in the circumstances of the case;
– the arrangements under which the Member State of the parent company takes account of the losses of UK resident companies apply regardless of whether the losses are also relieved in another Member State?
(c) Would it make any difference if there were evidence that relief had been obtained for the losses in the Member State in which the subsidiary was resident and, if so, would it matter that the relief was obtained subsequently by an unrelated group of companies to which the subsidiary was sold?’
27 By its first question, the High Court seeks essentially to ascertain whether Articles 43 EC and 48 EC preclude provisions of a Member State which prevent a resident parent company from deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State although they allow it to deduct losses incurred by a resident subsidiary.
28 In other words, the question is whether such provisions constitute a restriction on freedom of establishment, contrary to Articles 43 EC and 48 EC.
29 In that regard, it must be borne in mind that, according to settled case-law, although direct taxation falls within their competence, Member States must none the less exercise that competence consistently with Community law (see, in particular, Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others  ECR I-1727, paragraph 37 and the case-law cited).
30 Freedom of establishment, which Article 43 EC grants to Community nationals and which includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, under the conditions laid down for its own nationals by the law of the Member State where such establishment is effected, entails, in accordance with Article 48 EC, for companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the European Community, the right to exercise their activity in the Member State concerned through a subsidiary, a branch or an agency (see, in particular, Case C-307/97 Saint Gobain ZN  ECR I-6161, paragraph 35).
31 Even though, according to their wording, the provisions concerning freedom of establishment are directed to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation (see, in particular, ICI, cited above, paragraph 21).
32 Group relief such as that at issue in the main proceedings constitutes a tax advantage for the companies concerned. By speeding up the relief of the losses of the loss-making companies by allowing them to be set off immediately against the profits of other group companies, such relief confers a cash advantage on the group.
33 The exclusion of such an advantage in respect of the losses incurred by a subsidiary established in another Member State which does not conduct any trading activities in the parent company’s Member State is of such a kind as to hinder the exercise by that parent company of its freedom of establishment by deterring it from setting up subsidiaries in other Member States.
34 It thus constitutes a restriction on freedom of establishment within the meaning of Articles 43 EC and 48 EC, in that it applies different treatment for tax purposes to losses incurred by a resident subsidiary and losses incurred by a non-resident subsidiary.
35 Such a restriction is permissible only if it pursues a legitimate objective compatible with the Treaty and is justified by imperative reasons in the public interest. It is further necessary, in such a case, that its application be appropriate to ensuring the attainment of the objective thus pursued and not go beyond what is necessary to attain it (see, to that effect, Case C-250/95 Futura Participations and Singer  ECR I-2471, paragraph 26, and Case C-9/02 De Lasteyrie du Saillant  ECR I-2409, paragraph 49).
36 The United Kingdom and the other Member States which submitted observations in the present proceedings claim that, from the aspect of a group relief system such as that at issue in the main proceedings, resident subsidiaries and non-resident subsidiaries are not in comparable tax situations. In accordance with the principle of territoriality applicable both in international law and in Community law, the Member State in which the parent company is established has no tax jurisdiction over non-resident subsidiaries. As regards the latter, tax competence belongs in principle, in accordance with the usual allocation of competence in such matters, to the States on whose territory they are established and carry out commercial activities.
37 In that regard, it must be noted that, in tax law, the taxpayers’ residence may constitute a factor that might justify national rules involving different treatment for resident and non-resident taxpayers. However, residence is not always a proper factor for distinction. In effect, acceptance of the proposition that the Member State in which a company seeks to establish itself may freely apply to it a different treatment solely by reason of the fact that its registered office is situated in another Member State would deprive Article 43 EC of all meaning (see Case 270/83 Commission v France  ECR 273, paragraph 18).
38 In each specific situation, it is necessary to consider whether the fact that a tax advantage is available solely to resident taxpayers is based on relevant objective elements apt to justify the difference in treatment.
39 In a situation such as that in the proceedings before the national court, it must be accepted that by taxing resident companies on their worldwide profits and non-resident companies solely on the profits from their activities in that State, the parent company’s Member State is acting in accordance with the principle of territoriality enshrined in international tax law and recognised by Community law (see, in particular, Futura Participations and Singer, paragraph 22).
40 However, the fact that it does not tax the profits of the non-resident subsidiaries of a parent company established on its territory does not in itself justify restricting group relief to losses incurred by resident companies.
41 In order to ascertain whether such a restriction is justified, it is necessary to consider what the consequences would be if an advantage such as that at issue in the main proceedings were to be extended unconditionally.
42 On that point, the United Kingdom and the other Member States which submitted observations put forward three factors to justify the restriction.
43 First, in tax matters profits and losses are two sides of the same coin and must be treated symmetrically in the same tax system in order to protect a balanced allocation of the power to impose taxes between the different Member States concerned. Second, if the losses were taken into consideration in the parent company’s Member State they might well be taken into account twice. Third, and last, if the losses were not taken into account in the Member State in which the subsidiary is established there would be a risk of tax avoidance.
44 As regards the first justification, it must be borne in mind that the reduction in tax revenue cannot be regarded as an overriding reason in the public interest which may be relied on to justify a measure which is in principle contrary to a fundamental freedom (see, in particular, Case C-319/02 Manninen  ECR I‑7477, paragraph 49 and the case-law cited).
45 None the less, as the United Kingdom rightly observes, the preservation of the allocation of the power to impose taxes between Member States might make it necessary to apply to the economic activities of companies established in one of those States only the tax rules of that State in respect of both profits and losses.
46 In effect, to give companies the option to have their losses taken into account in the Member State in which they are established or in another Member State would significantly jeopardise a balanced allocation of the power to impose taxes between Member States, as the taxable basis would be increased in the first State and reduced in the second to the extent of the losses transferred.
47 As regards the second justification, relating to the danger that losses would be used twice, it must be accepted that Member States must be able to prevent that from occurring.
48 Such a danger does in fact exist if group relief is extended to the losses of non-resident subsidiaries. It is avoided by a rule which precludes relief in respect of those losses.
49 As regards, last, the third justification, relating to the risk of tax avoidance, it must be accepted that the possibility of transferring the losses incurred by a non-resident company to a resident company entails the risk that within a group of companies losses will be transferred to companies established in the Member States which apply the highest rates of taxation and in which the tax value of the losses is therefore the highest.
50 To exclude group relief for losses incurred by non-resident subsidiaries prevents such practices, which may be inspired by the realisation that the rates of taxation applied in the various Member States vary significantly.
51 In the light of those three justifications, taken together, it must be observed that restrictive provisions such as those at issue in the main proceedings pursue legitimate objectives which are compatible with the Treaty and constitute overriding reasons in the public interest and that they are apt to ensure the attainment of those objectives.
52 That analysis is not affected by the indications, set out in the second part of the first question, relating to the arrangements applicable in the United Kingdom:
– to the profits and losses of a foreign subsidiary of a company established in that Member State;
– to the dividends distributed to a company established in that State by a subsidiary established in another Member State.
53 None the less, the Court must ascertain whether the restrictive measure goes beyond what is necessary to attain the objectives pursued.
54 Marks & Spencer and the Commission contended that measures less restrictive than a general exclusion from group relief might be envisaged. By way of example, they referred to the possibility of making relief conditional upon the foreign subsidiary’s having taken full advantage of the possibilities available in its Member State of residence of having the losses taken into account. They also referred to the possibility that group relief might be made conditional on the subsequent profits of the non-resident subsidiary being incorporated in the taxable profits of the company which benefited from group relief up to an amount equal to the losses previously set off.
55 In that regard, the Court considers that the restrictive measure at issue in the main proceedings goes beyond what is necessary to attain the essential part of the objectives pursued where:
– the non-resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods, if necessary by transferring those losses to a third party or by offsetting the losses against the profits made by the subsidiary in previous periods, and
– there is no possibility for the foreign subsidiary’s losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.
56 Where, in one Member State, the resident parent company demonstrates to the tax authorities that those conditions are fulfilled, it is contrary to Articles 43 EC and 48 EC to preclude the possibility for the parent company to deduct from its taxable profits in that Member State the losses incurred by its non-resident subsidiary.
57 It is also important, in that context, to make clear that Member States are free to adopt or to maintain in force rules having the specific purpose of precluding from a tax benefit wholly artificial arrangements whose purpose is to circumvent or escape national tax law (see, to that effect, ICI, paragraph 26, and De Lasteyrie du Saillant, paragraph 50).
58 Furthermore, in so far as it may be possible to identify other, less restrictive measures, such measures in any event require harmonisation rules adopted by the Community legislature.
59 Accordingly, the answer to the first question must be that, as Community law now stands, Articles 43 EC and 48 EC do not preclude provisions of a Member State which generally prevent a resident parent company from deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State although they allow it to deduct losses incurred by a resident subsidiary. However, it is contrary to Articles 43 EC and 48 EC to prevent the resident parent company from doing so where the non-resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods and where there are no possibilities for those losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.
60 In the light of the answer to the first question, there is no need to answer the second question.
61 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Grand Chamber) hereby rules:
As Community law now stands, Articles 43 EC and 48 EC do not preclude provisions of a Member State which generally prevent a resident parent company from deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State although they allow it to deduct losses incurred by a resident subsidiary. However, it is contrary to Articles 43 EC and 48 EC to prevent the resident parent company from doing so where the non-resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods and where there are no possibilities for those losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.
* Language of the case: English.
Ссылка на источник здесь http://materialotzakharova.narod.ru/ECJ/C44603.htm
12.01.2006, 11:43 #2
А в чем фишка то?
12.01.2006, 11:47 #3
12.01.2006, 11:55 #4
Вот тут сокращенный вариант
The European Court of Justice has handed down its
decision in the Marks & Spencer case. Since the Advocate
General gave his opinion on 7 April 2005 the Court’s
decision has been eagerly awaited particularly as some of
the more recent decisions of the ECJ (such as the decision
in the “D” case) have suggested that in relation to direct
tax cases that are being referred to the Court on the
grounds of inconsistency with the fundamental freedoms
contained in the EC Treaty there might be a shift in the
direction that the Court is taking. Prior to the opinion
of the Advocate General many commentators felt that the
Marks & Spencer case would result in an unqualified defeat
for the Revenue. However, both the opinion of the
Advocate General and now the decision of the ECJ suggest
that the Court might be at least slowing down (if not
holding or reversing) its propensity to bring about
harmonisation of corporate tax through the back door.There are no withholding taxes on the wages of sin (с)
12.01.2006, 12:00 #5
However, both the opinion of the
Advocate General and now the decision of the ECJ suggest
that the Court might be at least slowing down (if not
holding or reversing) its propensity to bring about
harmonisation of corporate tax through the back door.
Типа законные схэмы могут рулить?
12.01.2006, 12:02 #6
Marks & Spencer: A win for the taxpayer or a win for the Government?
The European Court's decision
Marks & Spencer established subsidiaries in France, Germany and Belgium. In the late 1990's and early 2000's these subsidiaries incurred significant losses. Marks & Spencer ceased to trade in Germany and Belgium and sold its French business to a third party. It also sought to set the losses of the foreign subsidiaries against the profits made by the UK parent. UK group relief rules do not permit the surrender of losses of foreign subsidiaries. The case was concerned with the extent to which the UK group relief rules contravened Article 43 (as extended to companies by Article 48) EC Treaty (the freedom of establishment for businesses). If you would like to read the article that we produced following the Advocate General's opinion please click here.
The ECJ has held that restricting the availability of group relief to UK companies constitutes a restriction on the freedom of establishment under Articles 43 and 48 EC Treaty in that it applies different treatment for tax purposes to losses incurred by a resident subsidiary and losses incurred by a non-resident subsidiary, thereby providing a disincentive to the establishment of a subsidiary in another member state.
However, the ECJ has accepted that a restriction is permissible where it pursues a legitimate objective, which is compatible with the treaty and which can be justified as being for the public interest. In particular, the Court accepted that the following three justifications put forward by the UK Government could provide a legitimate basis for the restrictions:
(a) to preserve a balanced allocation of the power to impose taxes as between the different member states (so that in principle where the profits of the subsidiary were not taxed in the UK, the relief of losses against UK profits would not represent a balanced allocation of the power to tax);
(b) to avoid the risk of the double use of losses which would exist if losses were taken into account in both the member state of the parent and the member state of the subsidiary (in other words, UK group relief rules that deny relief to the UK parent for losses of its foreign subsidiary can be justified where those losses are able to be used in the member state of the subsidiary); and
(c) to avoid the risk of tax avoidance which would exist if the losses were not taken into account in the member state of the subsidiary (here, the Court was concerned with the possibility of a foreign subsidiary in a low tax jurisdiction electing to surrender losses to a parent based in a jurisdiction with a higher tax rate; the motive for surrendering the losses to the jurisdiction with higher tax rates is for tax avoidance rather than simple utilisation of the losses).
Therefore, the Court held that the UK group relief rules that place restrictions on the ability of a subsidiary resident in another member state to surrender losses to its UK parent are permissible. However, the Court also went on to make clear that provisions that are in principle discriminatory could only be justified (on the grounds of overriding public interest) where they are proportionate. In other words, the UK group relief rules that restrict a foreign subsidiary's ability to surrender its losses to its UK parent will only be upheld as legitimate to the extent that they are necessary to satisfy the public interest objective.
The Court set out the tests that need to be applied to determine whether or not the restrictions can be regarded as proportionate. Where the following two conditions are fulfilled, the restrictions on the ability of the foreign subsidiary to surrender its losses cannot be justified so that the UK would be in breach of Article 48 if it fails to provide relief for the losses:
(a) "the non resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods, if necessary by transferring those losses to a third party or by offsetting the losses against the profits made by the subsidiary in previous periods, and
(b) there is no possibility for the foreign subsidiary's losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party."
The meaning of these two conditions holds the key to determining the extent to which losses arising in a foreign subsidiary resident in another member state can be surrendered to its UK parent. This is true not only for Marks & Spencer but for any other group that has loss making subsidiaries.
Under the first condition the foreign subsidiary must have exhausted its ability to use the losses in its state of residence either in the accounting period in which they arose or any previous accounting period (by carrying back and setting against prior year profits) and whether by setting the losses against its own profits or the profits of a third party (eg. another group company resident in the same state). If it could have, but did not, then the group relief rules can be justified (even if the losses are instead carried forward and for whatever reason cannot be used in the future).
This condition would seem to be relatively clear. Where the member state of the foreign subsidiary does not permit the carry forward of losses, the surrender of losses to a third party (eg. another group company) or either does not permit the carry back of losses or as a matter of fact the foreign subsidiary has no prior year's profits against which to set the losses then this condition will be satisfied.
The second condition, that also needs to be satisfied, is that the foreign subsidiary is unable to preserve the losses for use in a future period. What this condition means is not so clear. If the loss is carried forward but in a subsequent accounting period it becomes clear that those losses will never in fact be used (either because the period for which the losses can be carried forward has expired or the company ceases trading, or the company is sold but due to the application of specific provisions the foreign subsidiary cannot use losses accumulated prior to the sale) are the restrictions contained in the UK group relief rules justified? On the face of it the Court is saying that the group relief rules would not be proportionate in these circumstances (assuming also that the foreign subsidiary was unable to use the losses under the first condition).
However, one important issue that the Court failed to address was that of time limits. If the foreign subsidiary carries forward losses, as it would do if it were able to (and cannot use the losses in the year they arise or carry them back or surrender them to a third party in the foreign jurisdiction) what happens if, say, 7 years later the foreign subsidiary ceases trading. If the parent wishes to make a group relief claim it will be out of time. If it wishes to pursue a remedy through the courts it may be barred from doing so under the Limitation Act. Generally, the ECJ has upheld the application of time limits in the name of certainty.
Did Marks & Spencer win?
For the German and Belgian subsidiaries that ceased trading it seems likely that there is no longer any possibility of those losses being used in the state of residence. Accordingly, Marks & Spencer should have a remedy assuming that it has never been in a position to use the losses in the local jurisdiction although this might depend on the subsidiaries being liquidated if, under local laws, the losses could be revived by a re-commencement of trading. For the French subsidiary, which was sold, the availability of a remedy will depend upon whether the losses may continue to be carried forward or, indeed, whether they can be surrendered to the purchaser. If not, Marks & Spencer should also have a remedy in respect of those losses as well.
But does this mean the Revenue lost?
In the narrow sense it may have done. However, the Revenue will be more concerned with the bigger picture and in this sense the Revenue may look upon the result as a victory. Although the group relief system will have to be extended to cover some losses of foreign subsidiaries (namely, those that cannot be used in the local country of the subsidiary) this is much more limited than it might have been and should not have the financial impact on the Exchequer that was originally feared.
The case still needs to be referred back to the English court for it to be applied to the specific facts. No doubt a lot of thought will be given to how this case applies to all of the other claims that have been made under the Group Relief GLO as well as those that have arisen more recently or those that may arise before we see any changes to the UK group relief rules. It is quite possible that we will see further references made to the ECJ for additional clarification and it will be interesting to see what view the Revenue take in relation to time limits and whether the English court makes any mention of this issue when the case is referred back.
It now seems clear that the "nuclear option" of abolishing group relief is unlikely. The cost to the Exchequer of making the necessary amendments to the group relief rules should be manageable. Indeed the changes would be relatively minor albeit that they may be more difficult to apply in practice. The residence conditions would have to be made subject to a number of conditions: that the surrendering company has (a) exhausted the possibilities available in its state of residence of having the losses taken into account for the accounting period in which they arose; and (b) exhausted the possibilities in its state of residence for carry back to previous accounting periods; and (c) that there is no possibility for those losses to be used in its state of residence for future periods either by the subsidiary itself or by a third party. We could see these amendments introduced in next year's Finance Bill.
It also seems likely that this decision will add an additional layer of complexity for groups managing losses within the EU. It is also conceivable that we could see certain member states restricting the extent to which losses can be used locally thereby shifting the fiscal burden for losses from the local state to the parent's state of residence.
It also provides an insight into the direction that we may be seeing the Court move over the coming years. The judgment may mark a significant step away from the previous line taken by the Court of finding every measure referred to it as a restriction and finding that the restrictions could hardly ever be justified. The acceptance of three separate grounds that could justify discriminatory measures (which could be described as territoriality, cohesion and tax avoidance) is remarkable in the light of the dismissive statements that have been made about these defences in a host of previous cases. The Court has said that while these defences may justify discriminatory measures such measures would only be EU law compliant if they were "proportionate" (that is to say that the measures were no more than was necessary to satisfy the territoriality, cohesion or tax avoidance public interest aim). If the Court follows this line in future cases it is likely to make the outcome of future ECJ cases much harder to predict. Although proportionality is not a new concept for the Court its use in this way in corporate tax cases is likely to give the Court more flexibility in determining what domestic law measures are EU law compliant and what measures are not.
The revival of the justifications of territoriality and cohesion is interesting because the defences were thought to be more or less dead, but the acknowledgement in a direct tax case of the tax avoidance justification – also known as 'abus de droit' – may be even more significant, especially in the light of the Cadbury Schweppes case concerning the UK's controlled foreign companies legislation which, coincidentally was heard by the ECJ immediately after the release of the judgment in Marks & Spencer.There are no withholding taxes on the wages of sin (с)
12.01.2006, 12:06 #7Сообщение от Юзверь
12.01.2006, 12:08 #8There are no withholding taxes on the wages of sin (с)
12.01.2006, 12:14 #9
ну если только на пальцах:
речь там видимо шла о различном порядке признания доходов у налогоплательщика по головной организации в англии и расходов у ее филиалов, расположенных в других странах ЕС.
Европейский Суд сказал, что различный порядок признания таких операций для целей налогооблодение сдерживает развитие стран Еврособюза, что не гуд.
Но он тут же и назвал попутно условия, когда такие ограничение обоснованы:
1. задачи сбалансированного налогообложение каждой тсраны
2. задачи противодействия уклонению."Тююю... - сказали ученики" (С)
(Из лекций о Будде)
12.01.2006, 12:51 #10
12.01.2006, 13:03 #11
вот уточняю: речь шла видимо о налогообложении английского холдинга: мамка а ЮК, дочки в ЕС.
убытки дочек в расходы у мамки не брались
Ну у нас-то все проще )) А нету у нас налогов для холдингов"Тююю... - сказали ученики" (С)
(Из лекций о Будде)
12.01.2006, 13:04 #12
Вообще-то, там речь идет не о филиалах, а о subsidiaries, тобишь, дочерних компаниях!
А суть выражается в следующем:
Аs Community law now stands, Articles 43 EC and 48 EC do not preclude provisions of a Member State which generally prevent a resident parent company from deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State although they allow it to deduct losses incurred by a resident subsidiary. However, it is contrary to Articles 43 EC and 48 EC to prevent the resident parent company from doing so where the non-resident subsidiary has exhausted the possibilities available in its State of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods and where there are no possibilities for those losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.
ИМХО, в случаях, когда дочерняя компания использовала все возможные легальные способы зачета своего убытка в стране своего резидентства и убыток остается, тогда этот убыток может быть перенесен для целей налогообложения материнской компании - резидента другого государства, например, Великобритании.
12.01.2006, 13:05 #13
Boozer согласен см мой пост выше. Но это для науки и не важно )"Тююю... - сказали ученики" (С)
(Из лекций о Будде)
12.01.2006, 13:09 #14
Но ведь и Boozerу надо ж как-то выпендриться··········)))
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