Halsey (HM Inspector of Taxes) v Marks & Spencer Plc [2007] EWCA Civ 117

[2007] EWCA Civ 117Case No C3/2006/1125Case No C3/2006/1117
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE PARK)
CH/2003/APP/0054
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20/02/2007
Before
LORD JUSTICE CHADWICKLORD JUSTICE TUCKEYLORD JUSTICE JACOB
Between
HALSEYAppellantMARKS & SPENCER PLCRespondentMARKS & SPENCER PLCAppellantHALSEYRespondent
Mr Richard Plender QC and Mr David Ewart QC (instructed by Acting General Counsel and Solicitor of HM Revenue & Customs, Somerset House, London WC2R 1LB) for HM Inspector of Taxes (Appellant and Respondent to cross-appeal)Mr Graham Aaronson QC (instructed by Dorsey & Whitney of 21 Wilson Street, London EC2M 2TD) for Marks & Spencer PLC (Respondent and Appellant to cross-appeal)Hearing Hearing dates : 16 and 17 November 2006
Judgment
[1]This appeal and cross-appeal are from the order made on 11 April 2006 by Mr Justice Park on an appeal by Marks & Spencer PLC (“M&S”) under section 56A of the Taxes Management Act 1970 from the decision of the special commissioners (Dr John Avery Jones CBE and Mr Malcolm Gammie QC) dated 17 December 2002. The special commissioners had held that M&S, a United Kingdom resident company, was not entitled to group relief against its profits in respect of losses incurred by subsidiaries established and resident in Belgium, France and Germany. So far as material to this appeal, the group relief claims are those made by M&S in respect of the four accounting periods ending on 31 March 1998, 1999, 2000 and 2001. The amounts in issue are substantial.

The legislation

[2]Group relief is made available under the provisions in Chapter IV of Part X of the Income and Corporation Taxes Act 1988 (“TA 1988”). Section 402(1) TA 1988 provides, so far as material, that:
“402(1) Subject to and in accordance with this Chapter . . . , 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 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 a relief from corporation tax called group relief.”
Section 402(2) TA 1988 provides that:
“402(2) Group relief shall be available in a case where the surrendering company and the claimant company are both members of the same group. A claim made by virtue of this subsection is referred to as a ‘group claim’.”
For accounting periods ending on or before 31 March 2000 – that is to say, in relation to three out of the four accounting periods in issue in the present case – section 402(2) was to be read with section 413(5) TA 1988:
“413(5) References in this Chapter to a company apply only to bodies corporate resident in the United Kingdom; . . .”
That provision was repealed, by the Finance Act 2000, with effect for accounting periods ending after 31 March 2000 – that is to say, in relation to the fourth of the accounting periods at issue in the present case – but was replaced (in substance) by sections 402(3A) and (3B) TA 1988:
“402(3A) Group relief is not available unless the following condition is satisfied in the case of both the surrendering and the claimant company. (3B) The condition is that the company is resident in the United Kingdom or is a non-resident company carrying on a trade in the UK through a branch or agency.”
A claim made by virtue of this subsection is referred to as a ‘group claim’.”[3]The special commissioners had rejected the contention, advanced by M&S, that the group relief provisions of United Kingdom domestic law, which (on their face) had the effect of preventing a subsidiary resident in another member state of the European Union but trading outside the United Kingdom from surrendering losses to its ultimate parent resident in the United Kingdom, were in breach of articles 43 and 48 of the EC Treaty (formerly articles 52 and 58):
“43 Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. Freedom of establishment shall include the right to take up and pursue activities as self employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of article 48, under the conditions laid down for its own nationals by the law of the country where such establishment is effected . . . 48 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 Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. ‘Companies or firms’ means companies or firms constituted under civil or commercial law, including co-operative societies and other legal person governed by public or private law, save for those which are non-profit-making.”

The reference to the Court of Justice

[4]The special commissioners had taken the view, expressed at paragraph 2 of their decision (SC 3050/02), that the relevant principles established by the case law of the Court of Justice were clear and that it was unnecessary to seek the guidance of that Court in order to reach a decision. But the judge was persuaded that, in order to decide the appeal that was before him, it was necessary to seek a preliminary ruling under article 234 of the EC Treaty. The questions referred are set out in the schedule to the order which he made on 2 May 2003. They can also be found at paragraph [26] in the judgment of the Court of Justice in Case C-446/03, reported at [2006] Ch 184.[5]On 13 December 2005 the Court of

Justice ruled:

“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.”
It is necessary, in the context of the present appeal, to have in mind the reasoning which led the Court of Justice to that conclusion. Three steps in that reasoning can be identified.[6]First, the Court accepted that the differential treatment, as between UK resident subsidiaries and non-resident subsidiaries, in relation to the surrender of losses for the purposes of group relief under United Kingdom domestic law, did constitute a restriction on freedom of establishment, contrary to articles 43 and 48 EC Treaty. The point is made at paragraphs [32] to [34] of the Court’s judgment ([2006] Ch 184, 214B-D):
“[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.”
[7]Second, the Court accepted that such a restriction could be permissible “only if it pursued a legitimate objective compatible with the Treaty and is justified by imperative reasons in the public interest” – paragraph [35]. Three factors were advanced by the United Kingdom (and other member states which submitted observations) to justify the restriction in the present case (paragraph [43], ibid, 215D-E):
“[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.”
The Court of Justice accepted that those three factors, taken together, did provide justification for the differential treatment of losses in relation to group relief. As it said (at paragraph [51]): “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”.[8]It is, I think, pertinent to examine what the Court thought were the “legitimate objectives . . . compatible with the Treaty” and the “overriding reasons in the public interest”. As to the first of the three factors identified at paragraph [43], the Court said this, (at paragraph [46]) “[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.” The Court observed, in relation to the second factor – the danger that the losses might be used twice – that “such a danger does in fact exist if group relief is extended to the losses of non-resident subsidiaries”; that member states “must be able too prevent that occurring”; and that that danger is avoided by a rule which precludes relief in respect of those losses - paragraphs [47] and [48]. As to the third factor – the risk of tax avoidance – the Court pointed out that:
“[49] . . . 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.”
[9]Third, the Court emphasised that the restrictive measure must not go beyond what is necessary to attain the objectives pursued (paragraph [53]). And, in that context, it said this (ibid, 216F-H):
“[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 (i) 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 (ii) 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.”
The observations in those paragraphs are, of course, reflected in the answer which the Court gave to the questions which had been referred to it.

The order of 11 April 2006

[10]In the light of the ruling from the Court of Justice, the judge dismissed the appeal to the extent that it concerned the losses of the French subsidiary, Marks & Spencer (France) SA (“M&SF”). There is, now, no appeal from that part of his order. But, to the extent that the appeal related to the losses of the German and the Belgian subsidiaries – Marks & Spencer (Deutschland) Gmbh (“M&SG”)and Marks & Spencer (Belgium) SA (“M&SB”) – the judge directed that the appeal be remitted to the special commissioners “to determine it in the light of the judgment of the High Court”; that is to say, he directed the special commissioners to re-open the appeal which had been before them in 2002 and to determine that appeal in the light of the judgment ([2006] EWHC 811 (Ch)) which he had handed down on 10 April 2006. It is that direction which has given rise to the appeal and cross-appeal in this Court.[11]Having sought and obtained a ruling from the Court of Justice to the effect that the group relief provisions of United Kingdom domestic law which prevent an EU subsidiary resident and trading outside the United Kingdom from surrendering losses to its UK parent are not in breach of articles 43 and 48 EC Treaty, save where there are no opportunities for the non-resident subsidiary to have the losses taken into account in its state of residence, it would have been open to the judge simply to remit (without further direction) the appeal from the revenue’s refusal of group relief as a matter for determination by the special commissioners in the light of findings of fact by them on the questions whether (i) the German and the Belgium subsidiaries, respectively, had exhausted the possibilities available in Germany and Belgium (as the case might be) of having losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods and (ii), if so, whether there were no possibilities for those losses to be taken into account in Germany or Belgium (as the case might be) 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 judge did not take that course.[12]The effect of the direction to the special commissioners that they determine the appeal before them in the light of the judgment handed down on 10 April 2006 is that the commissioners are not free to decide for themselves, on the facts, whether each subsidiary has exhausted the possibilities available to it in its own state of residence of having its losses taken into account for the relevant or previous accounting periods or (if so) whether there are possibilities in the future. The special commissioners must decide those questions on the basis of the interpretation which, it is said, the judge has put upon the “no possibilities” test adumbrated by the Court of Justice. And it is because the parties are unable to agree as to what the judge intended by his interpretation of the “no possibilities” test – or whether his interpretation is correct – that the matter comes to this Court on appeal without having, first, gone back to the special commissioners. This Court is invited to decide the issues in a vacuum – or, as the parties would put it, “in principle” – without there having been any determination on the facts. I do not find that position satisfactory. The answer to the question whether there is a possibility (or no possibility) for losses to be taken into account in a foreign state of residence is, as it seems to me, likely to be fact sensitive. It would, I think, have been much more satisfactory if this Court had been able to decide that question in the context of facts which had been determined by the tribunal to whom that task has been entrusted.[13]At paragraphs [26] to [30] of his judgment, the judge addressed the question whether, on the test laid down by the Court of Justice, M&S could claim group relief in respect of the losses of the French subsidiary, M&SF. He accepted, as a correct summary of the Court’s judgment, that advanced on behalf of the revenue (which he had set out at paragraph [23](ii) of his judgment):
“Legislation of a Member State which imposes a blanket prohibition on intra-Community cross border surrenders of losses is not contrary to Community law, but, on a case by case basis, may not be applied to any case the facts of which correspond to the circumstances described in paragraph 55 of the ECJ judgment.”
He observed that, on the basis of that approach, there was no reason why the domestic legislation should not be applied in respect of the French losses. As he put it (at paragraph [26]):
“the losses not merely continued to be available for use in France, but also have actually been used . . .”
As I have said, there is no appeal from that part of the judge’s order. In particular, it is not said that the judge was wrong to adopt the approach summarised at paragraph [23](ii) of his judgment.[14]At paragraph [31] of his judgment,

the judge went on to say this:

“[31] It follows from what I have said in relation to the losses of M&SF that M&S can be entitled to group relief for the losses of M&SG and M&SB only if those losses come within the circumstances described by the ECJ in the two indents of paragraph 55 of the judgment. . . .”
In that context the judge’s reference to “the two indents of paragraph 55 of the judgment” is to sub-paragraphs (i) and (ii) of the text of paragraph [55] as set out at [2006] Ch 184, 216F-G and earlier in this judgment. He continued:
“[31] . . . Paraphrasing them in relation to M&SG: (the first indent) M&SG must have exhausted the possibilities available to it in Germany of having the losses taken into account for the accounting periods concerned by the claim for relief and also for previous accounting periods, if necessary by transferring them to a third party or by offsetting them against the profits made by ‘the subsidiary’ (presumably M&SG itself) in previous accounting periods; further (the second indent) there must be no possibility of M&SG’s losses to be taken into account in Germany for future periods either by M&SG itself or by a third party, in particular where M&SG has been sold to the third party. Mutatis mutandis the same applies to the losses of M&SB.”
As I understand the submissions made by M&S in this Court, there is no quarrel with that approach. But M&S take issue with the judge’s interpretation of the concept expressed in the phrases “exhausted the possibilities available” and “no possibility”.[15]The judge set himself the task of explaining “what the ECJ had in mind by the concepts which it set out in paragraph 55”. He recognised that “an interpretation may give rise to a question of how it would apply to the particular facts of M&SG or M&SB”. That, he said “would be a matter to be determined in the first instance by the Special Commissioners”. Nevertheless, there were a number of points to be made. Those follow at paragraphs [33] to [41] of the judgment.[16]First, as the judge held, “when the ECJ refers to ‘possibilities available’ it means recognised possibilities legally available given the objective facts of the company’s situation at the relevant time”. That required consideration of “what is the relevant time”; a question which, as the judge recognised, could be “of considerable importance”. Before turning to that question, the judge addressed three other elements:
“possibilities legally available, the objective facts of the company’s situation at the relevant time, and the possibilities being recognised possibilities”
. He said this:
“[34] I start with the assumption, which is certainly correct, that the tax laws of Germany and Belgium do contain provisions under which relief for losses can be obtained in some circumstances. That, however, is not enough to mean that M&SG and M&SB could never satisfy the conditions of paragraph 55 of the ECJ judgment. In any developed tax system there will be detailed rules regulating at least the following matters: (1) what kinds of losses qualify for some form of tax relief; (2) for what form or forms of tax relief they qualify; that is what the kinds of profits or income are which, apart from the losses, would be taxable, but against which relief for the losses can be obtained; (3) what the periods are against the profits or income of which the losses can be relieved. These can be complicated matters.”
[17]At paragraphs [35] and [36] of his judgment the judge illustrated “the range of potential complications” by reference to the availability of tax relief treatment for losses under the domestic law of the United Kingdom; although, as he said, “the UK rules about the availability of tax relief for losses made by companies are not directly relevant to the present case: it is the German and Belgian rules which are relevant”. He went on to say this:
“[37] I have no knowledge of how the detailed rules of German and Belgian tax law operate in relation to these matters, but the application of the criteria in paragraph 55 of the ECJ’s judgment requires an ascertainment of what forms of loss relief are provided for in Germany and Belgium and an application of them to the particular circumstances of M&SG and M&SB. I do, however, say that in my view the particular circumstances of M&SG and M&SB do not for these purposes include the degree of probability or improbability of them returning to profitability in future. Suppose (1) that at the relevant time (which I am going to expand on below) they were still trading; (2) that, if they returned to profit in future accounting periods, their losses would, under German and Belgian tax law, have been relievable against the future profits; but (3) that evidence is given on behalf of M&S that there was little or no real likelihood of their returning to profit in the future. In that case the criteria of paragraph 55 of the judgment would not be satisfied: the objective facts were that the company was still trading and the national tax law permitted past trading losses to be set against future trading profits. With reference to the second of the two indents in paragraph 55 it would not be the case that there was no possibility for the losses to be taken into account in Germany and Belgium for future periods: the possibility would exist, even if it was unlikely that it would ever happen.” [38] I will give one other example to illustrate the same point. Suppose that: (1) one of the companies, say M&SG, had already ceased to trade at the relevant time; (2) German tax law, unlike UK tax law, contained provisions under which M&SG’s unrelieved trading losses from its discontinued trade could be carried forward and used against future income or gains from sources other than the trade (like interest on loans); but (3) the evidence is that the M&S group in general, and M&SG in particular, had no intention that the company should ever be in receipt of other income or gains in the future. In that situation also the criteria of article 55 would not be satisfied. [39] Here I give an example which, if it corresponds to the facts of either M&SG’s or M&SB’s losses, would lead to the opposite conclusion. Suppose that the principles of German or Belgian tax law were in all essential respects the same as those of UK law which I illustrated in paragraph 36 above, and that the facts of M&SG or M&SB corresponded to those in that illustration. That is, suppose that at the relevant time either company had ceased to trade, that the German or Belgian law did not permit any carry forward of unrelieved losses of a discontinued trade, that all possibilities for which the German or Belgian law provided of carrying the losses back or setting them against other current income had been used, and that there was still a balance of unused losses. Those losses would in my judgment comply with the paragraph 55 conditions, and M&S would in principle be entitled to group relief in respect of them.”
[18]The judge explained that, in pointing out (at paragraph [33] of his judgment) that ‘possibilities available’ meant recognised possibilities, he had included the word ‘recognised’ against the background “that the ECJ’s formulation effectively places on the claimant for group relief (in this case M&S) the burden of proving a negative: that there were no possibilities of obtaining German or Belgian tax relief for the losses”. He observed that:
“To prove a negative is always difficult: the litigant is exposed to the risk of it being said that he has identified a number of possibilities and shown that they do not apply in his case, but who can say that there may not be other possibilities which have not been considered at all?”
. And he went on:
“[41] However, a principle which runs through the whole of Community law and has been enunciated by the ECJ in numerous cases is the principle of effectiveness: procedures in Member States must not render practically impossible or excessively difficult the exercise of rights conferred by Community law. In my view the burden cast on M&S does require it to ‘demonstrate’ (the word used in paragraph 56 of the ECJ judgment) that none of the generally recognised means of obtaining tax relief in Germany or Belgium for a company’s trading losses existed as possibilities at the relevant time. It does not require M&S to demonstrate more than that. In particular I do not think that M&S should be at risk of losing the case by reason of an argument that there might be some other possible way of getting relief for the losses which, despite making reasonable enquiries of German and Belgian tax specialists, it has not thought of and therefore has not eliminated.”

The judge then turned to the question:

“What is the relevant time as at which M&S has to demonstrate that the conditions of paragraph 55 were satisfied in relation to the losses of M&SG and M&SB?”
. He thought that there were three possibilities, which he set out at paragraph [43] of his judgment:
“[43] . . . (1) the end of the accounting period of loss for M&SG and M&SB, and thus also the end of the accounting period of M&S as respects which M&S has claimed group relief for the losses; (2) the time or times when M&S made the claim or claims for group relief; (3) the time when an appeal on the question is decided by the Special Commissioners. ”
He concluded that it was the second of those possibilities which provided the answer: the time or times when M&S made the claim or claims for group relief. His reasons are set out at paragraphs [44] to [46]:
“[44] . . . Time (1) is too soon, and would be likely to rule out virtually every case. At the end of an accounting period in which M&SG or M&SB made a loss and therefore was likely still to be carrying on its trade it is hard to imagine any case in which German or Belgian law would not provide for some possibility of relief for the losses. [45] Time (3) does have the linguistic support that in paragraph 56 of the ECJ judgment the word ‘demonstrates’ is in the present tense, but I do not think that the ECJ meant to say that the paragraph 56 tests fell to be determined only by reference to the circumstances which existed when a case came to appeal, however remote that time was from the underlying events which gave rise to the issue. If that was the position it would mean that a company could claim group relief at a time when relief was not available, but then spin out time before the matter came to appeal in the hope that by then the facts would have changed and the appeal would succeed. [46] In contrast, time (2) in my view provides a rational basis for applying paragraph 55. If a company claims group relief at a time when the paragraph 55 criteria are satisfied it should get the relief. If it applies for it at a time when the criteria are not satisfied it should not.”

This appeal and cross-appeal

[20]The revenue filed an appellant’s notice on 22 May 2006, under reference 2006/1117. M&S filed its appellant’s notice on the same day, under reference 2006/1125. In each case the appeal was from paragraph 2 of the order of 11 April 2006; that is to say from so much of the order as remitted the appeal from the special commissioners, in so far as it related to the losses of M&SG and M&SB, for determination by the special commissioners “in the light of the judgment of the High Court”. It is common ground that the appeal from the special commissioners should be remitted to them for further determination. The concern, of both parties but in differing respects, is that, in making that determination, the special commissioners should not be required to proceed on the basis that the judge’s interpretation of the “no possibilities” test adumbrated by the Court of Justice is correct.[21]As I have said, the amounts in issue are substantial. The aggregate losses of M&SG (for which relief was claimed) over the four periods ended 31 March 1998 to 2001 were in excess of £46.4 million. The claim in respect of the losses of M&SB was limited to the third and fourth of those periods; and was in excess of £5.6 million. Permission to appeal and cross-appeal was granted on 21 June 2006.[22]The revenue’s quarrel is with the judge’s conclusion, at paragraphs [44] and [46] of his judgment, that the time at which M&S had to show that the conditions in paragraph [55] of the judgment of the Court of Justice (“the paragraph 55 conditions”) were satisfied was the time when M&S made the relevant claim or claims for group relief. It is said that the judge should have held that the relevant time was the end of the accounting period in respect of which M&S was claiming group relief.[23]Although M&S were, at first, minded to challenge the judge’s interpretation in the three respects set out in its appellant’s notice and summarised at paragraph 20 of the skeleton argument filed on its behalf, its position at the hearing of the appeal was set out in writing in a “Summary of Submissions for Marks & Spencer”. M&S accepted that the relevant dates for the application of the “no possibilities” test were “the dates on which the final claims for group relief will be made as permitted by the existing UK group relief regime”. But, on the basis that the judge’s “suggested criteria of ‘recognised possibilities’ approximated to the theoretical ability to carry forward losses under the [local] tax code”, it is said that he was in error.[24]Two other, more fundamental, submissions were advanced on behalf of M&S in this Court. First, it was said that the Community law principle of effectiveness required that M&S should be granted a transitional period, commencing on the date that its community rights to make group relief claims in respect of non-resident subsidiaries are clearly established, in which to make a claim for such relief and to demonstrate that, at the point the claim is made, there is no possibility that the subject losses will be used. Second, it is said that it may become necessary to consider whether the judgment of the Court of Justice requires the automatic disapplication of the rule in the group relief code which required surrendering companies to be resident in the United Kingdom (or, after 2000, carrying on a taxable trade in the United Kingdom). That question, it is said, may require a further reference to the Court of Justice for a preliminary ruling.

The relevant date

[25]It is, I think, convenient to address the issue raised by the revenue’s appeal – the relevant date for the application of the “no possibilities” test – before turning to the issues raised by M&S on its cross-appeal.[26]Section 402(1) TA 1988 – read with section 402(2) - provides for group relief in respect of trading losses where(i) the losses are surrendered by one group company (the surrendering company) and(ii) the relief is claimed by another company in the same group (the claimant company). Claims for group relief are now to be made in accordance with the provisions of Part VIII of schedule 18 to the Finance Act 1998 (“FA 1998”): section 412 TA 1988. Those provisions have replaced the provisions in schedule 17A TA 1988 in relation to accounting periods ending on or after 1 July 1999. In relation to the first two of the accounting periods in issue in these proceedings, the provisions in schedule 17A TA 1988 apply. The provisions in schedule 17A TA 1988 (under what is described as the “Pay and File” regime then in operation) differ from those in schedule 18 to the 1998 Act (the Self Assessment regime). But, save as to the time within which a claim must be made, it is not suggested that the differences are material in the present context.[27]A claim for group relief must be made by being included in the claimant company’s company tax return for the accounting period for which the claim is made: paragraph 67(1) in schedule 18, replacing paragraph 6(1) in schedule 17A. The claim may be included in the return originally made or by amendment: paragraph 67(2) in schedule 18, replacing paragraph 6(2) in schedule 17A. The claim requires the consent of the surrendering company and must be accompanied by a copy of the notice of consent to surrender given by the surrendering company: paragraph 70 in schedule 18, replacing paragraph 10(1) and (8) in schedule 17A. Paragraph 71 in schedule 18, replacing paragraph 10(4) in schedule 17A, sets out the information which must be contained in a notice of consent. Paragraph 73 in schedule 18 provides that a claim for group relief may not be amended, but must be withdrawn and replaced by another claim; and that, if the claim is to be withdrawn and replaced, the company must amend its tax return. The relevant provisions in schedule 17A (paragraphs 6 and 12) are, I think, to like effect.[28]Paragraph 74(1) in schedule 18 prescribes the time limits within which a claim for group relief may be made under the Self Assessment regime:
“74(1) A claim for group relief may be made or withdrawn at any time up to whichever is the last of the following dates: (a) the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made; (b) if notice of enquiry is given into that return, 30 days after the enquiry is completed; (c) if after such an enquiry the Inland Revenue amend the return . . . , 30 days after notice of the amendment is issued; (d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.”
A claim for group relief may be made or withdrawn at a later time if the Inland Revenue so allow: paragraph 74(2). (a) the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made; (b) if notice of enquiry is given into that return, 30 days after the enquiry is completed; (c) if after such an enquiry the Inland Revenue amend the return . . . , 30 days after notice of the amendment is issued; (d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.”[29]The position under the Pay and File regime is governed by paragraphs 2 to 5 of schedule 17A TA 1988:
“2 (1) No claim for an accounting period of a company may be made if – (a) the company has been assessed to corporation tax for the period, and (b) the assessment has become final and conclusive. (2) Sub-paragraph (1) above shall not apply in the case of a claim made before the end of 2 years from the end of the period. (3) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim. 3(1) No claim for an accounting period of a company shall be made after the end of six years from the end of the period, except under paragraph 5 below. (2) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim. 4 Where under paragraph 2 or 3 above a claim must not be made after a certain time, it may be made within such further time as the Board may allow. 5(1) A claim for an accounting period of a company may be made after the end of 6 years from the end of the period if – (a) the company has been assessed to corporation tax before the end of the 6 years from the end of the period, (b) the company has appealed against the assessment, and (c) the assessment has not become final and conclusive. (2) No claim for an accounting period of a company may be made after the end of 6 years and 3 months from the end of the period.” (a) the company has been assessed to corporation tax for the period, and (b) the assessment has become final and conclusive. (3) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim. (b) the company has appealed against the assessment, and (c) the assessment has not become final and conclusive. (2) No claim for an accounting period of a company may be made after the end of 6 years and 3 months from the end of the period.”
[30]The dominant features of the group relief provisions – whether under the Pay and File regime or under the Self Assessment regime – is that the claim must be made in the claimant company’s tax return for the accounting period for which the claim is made; the return must identify the surrendering company; the surrendering company must give notice of consent in writing at or before the time the claim is made; the notice of consent must include the amount of relief surrendered, the name and tax district reference of both the surrendering and the claimant company and the accounting period of the surrendering company to which the claim relates; and the claim must be accompanied by a copy of the notice of consent. It is clear, therefore, that a claim for group relief, if made under the provisions applicable to claims under domestic law, will disclose the fact (if it be so) that the surrendering company is not resident in the United Kingdom or (in a case where section 402(3B) TA 1988 applies) does not carry on business in the United Kingdom through a branch or agency.[31]In the light of the ruling from the Court of Justice, it is clear, also, that the United Kingdom tax authorities are entitled to reject a claim for group relief in a case where, on the face of the claim (read with the notice of consent), it appears that the surrendering company is not resident in the United Kingdom (or does not carry on business in the United Kingdom through a branch or agency) unless the claimant company demonstrates to those tax authorities that the paragraph 55 conditions of the Court’s judgment are fulfilled. It is equally clear, as it seems to me, that the provisions of domestic law require – and are entitled to require – that that is demonstrated at the time when the claim is made. I can see no reason why the revenue should not require, at the time when the claim is made – in addition to or in lieu of a notice of consent - a notice from the non-resident surrendering company which confirms that it has exhausted the possibilities available in its state of residence of having the losses in respect of which the claim is made taken into account for the accounting period to which the claim relates or for previous accounting periods and that there is no possibility of those losses being taken into account in its state of residence for future periods, either by the surrendering company or by a third party. Further, as it seems to me, the revenue is entitled to require appropriate evidence to support that notice. The most cogent evidence, if it were available within the provisions of the tax code applicable in the state of residence, would be some form of certificate, confirmation or notification from the local tax authorities that the relevant losses could not be taken into account in the accounting period in which they were incurred and that there was no possibility of carry back or carry forward. But I do not suggest that other objective evidence could not suffice.[32]The issue between the parties, however, is not as to the time at which the claimant company must seek to demonstrate that the paragraph 55 conditions are satisfied; but rather as to the time at which those conditions are, in fact, to be satisfied. In other words, is it enough (as the judge held and as M&S contends) that the conditions are satisfied at the time when the claimant company makes the claim for group relief; or must it be demonstrated at the time when the claim is made (as the revenue contends) that the conditions were satisfied at the end of the accounting period for which group relief is claimed?[33]The revenue rests its contention, first, upon the structure and language of paragraph [55] of the ruling of the Court of Justice and, second, upon what are said to be the anomalies and inconvenience which would flow from the date chosen by the judge. The submission under the first of those heads is set out at paragraph 8 of the skeleton argument filed on behalf of the revenue in this Court:
“The condition for the restrictive measure at issue going beyond what is necessary is divided into two indents. The first indent is couched in the past tense ‘the non-resident subsidiary has exhausted …’. It refers to possibilities for relief in the accounting period in which the losses arise. The second indent looks to possibilities for future accounting periods. The point of time at which the accounting period in which the losses accrue is in the past and future accounting periods are in the future. The date at which the taxpayer must demonstrate that the conditions of Paragraph 55 are satisfied must be the end of the accounting period in which the losses accrue.”
The last sentence of that paragraph reveals, if I may say so, potential for some confusion of thought. The taxpayer is not required to demonstrate anything until he makes the claim for group relief. The relevant question is what, then, does he have to demonstrate. The revenue’s case, as I understand it, is that the taxpayer must demonstrate, when he makes the claim, that the paragraph 55 conditions were satisfied at the end of the accounting period in which the losses accrued. It is, I think, reasonably clear that “the accounting period”, in that context, means the accounting period of the surrendering company (“the surrender period”). That may not be the same as the accounting period of the claimant company (”the claim period”) .[34]The Court of Justice accepted that provisions of domestic law which restrict the availability of group relief in respect of losses to the losses of companies resident in the member state pursue legitimate objectives which are compatible with the EC Treaty. The Court of Justice identified those objectives in paragraph [43] of its judgment. It is pertinent to have them in mind. First, there is the need to treat profits and losses 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, there is the need to avoid the possibility that losses are taken into account twice – that is to say, in two different member states. And, third, if the losses are not taken into account in the member state in which the loss making company is established there is a risk of tax avoidance by the transfer of losses within a group to companies established in other member states which apply higher rates of taxation. But, as the opening words of paragraph [55] itself make clear, the pursuit of those objectives by restrictive and differential provisions in domestic law must not go beyond what is necessary “to attain the essential part of the objectives pursued”. And the restriction goes beyond what is necessary in circumstances which fall within one or other of the two indents (or conditions) set out in paragraph [55].[35]It is not difficult to see why the Court of Justice took the view that, in circumstances which fall within the paragraph 55 conditions, the restriction goes beyond what is necessary. If(i) the (non-resident) surrendering company has exhausted the possibilities, available in its state of residence, of having the losses taken into account for the surrender period and for previous accounting periods and(ii) there is no possibility for the surrendering company’s losses being taken into account in its state of residence for future accounting periods, then: (1) full effect has been given to the power of the state of residence of the surrendering company to impose taxes on its own resident and there is no need to “protect a balanced allocation of the power to impose taxes” between that state and the state of residence of the claimant company; (2) there is no possibility that the losses of the surrendering company will be taken into account twice; and (3) there is no potential for tax avoidance – the surrendering company has been required to use its losses in its own state of residence so far as it can.[36]I can find no support in the reasoning which underlies the approach of the Court of Justice for the proposition that the paragraph 55 conditions must be satisfied at the end of the surrender period. It is important to keep in mind, as it seems to me, that the question whether the United Kingdom tax authorities are precluded by Community law from applying the restriction on group relief imposed by domestic law does not arise until a claim for group relief is made by the claimant company. The claim must be accompanied by a notice from the surrendering company. At the least the surrendering company must consent to the use of its losses by the claimant company; and (as I have said) it may well be that the claimant company can be required to provide some formal confirmation from the surrendering company that the losses are not available in its state of residence. The question whether the United Kingdom tax authorities are precluded by Community law from applying the restriction on group relief imposed by domestic law turns on whether the paragraph 55 conditions are satisfied. I can see no reason in principle why the latter question – whether the paragraph 55 conditions are satisfied – should not be answered by reference to the facts as they are when the former question arises.[37]As I have said, the revenue contends that to answer the question whether the paragraph 55 conditions are satisfied by reference to the facts as they are when the claim for group relief is made will give rise to anomalies and inconvenience. The revenue seeks to support that contention by two illustrative examples: one based on the position under the Pay and File regime and the other based on the position under the, current, Self Assessment regime.[38]The revenue points out, correctly, that the effect of schedule 17A TA 1988 (applicable to the Pay and File regime) is that the time limits for making group relief claims were linked to the times within which an assessment could be made and had become final. It is said that that was deliberate:
“In the case of a group of companies it might well be convenient for assessments and final group relief claims only to be made once the figures for all the companies in the group were agreed”
. So, it is said, the latest time at which a group relief claim could be made would depend on (i) whether the circumstances were such that the inspector decided to make an early assessment rather than wait until figures were agreed and (ii) whether the inspector made enquiries into the figures in the returns, and the speed of agreement of figures both in the claimant company and across the group. Those factors (which, if the judge were correct, would determine the time at which it would be necessary that the paragraph 55 conditions were satisfied) “might be completely unconnected with the relievability of the loss of the foreign surrendering company”.[39]Under the Self Assessment regime, the time limits for making group relief are governed by schedule 18 FA 1998. So, it is said, the latest time at which a group relief claim could be made (and the time at which, if the judge is correct, it would be necessary that the paragraph 55 conditions were satisfied) would depend on whether the revenue decided to make enquiries into the figures in the returns and the speed of agreement of the figures submitted by the claimant company. Further anomalies arise (it is said) where the claimant company adopts a period of account in excess of 12 months.[40]For my part, I do not find it surprising that the ruling of the Court of Justice – that there are circumstances in which the United Kingdom tax authorities would be in contravention of Community law if they were to refuse group relief to a United Kingdom resident company on the basis that the losses in respect of which that relief was claimed were the losses of a company resident in another member state – may give rise to anomalies and inconvenience. The United Kingdom domestic tax code in relation to the taxation of companies in the same group is based on the assumption that group relief is only available as between companies which are subject to that code. It may be expected that, if relief is to be given in respect of the losses of a company which is not subject to that code, the circumstances will not sit easily within the code.[41]The ruling of the Court of Justice requires, as it seems to me, that in cases where the restrictions on group relief in respect of the losses of non-resident companies go beyond what is necessary in the pursuit of legitimate objectives compatible with the EC Treaty, those losses are to be treated, so far as possible, in the same way as losses of resident companies. Differential treatment is to be avoided. The decision of a resident company to surrender its losses – and to give notice of consent – can be made at or up to the time when the claimant company makes its claim for group relief; and so can be made on the basis of facts as they are at the end of the period within which the claimant company is permitted to make a claim for group relief. It is, I think, plain that the decision of a non-resident company to surrender its losses – because they cannot be used in its own state of residence – can be made at or up to the time when the claimant company makes its claim for group relief. I can see no reason why that decision, also, should not be made on the basis of facts (including facts which go to the question whether or not the paragraph 55 conditions are satisfied) as they are at the end of the period within which the claimant company is permitted to make its claim.[42]It follows that I would dismiss the revenue’s appeal. I should add that I do not see the judge’s decision on this point as providing opportunities for abuse. The Court of Justice made clear, at paragraph [57] of its judgment, that the United Kingdom tax authorities are entitled to adopt or 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. The effect of artificial arrangements made by the non-resident company for the purpose of enabling it to be said that the paragraph 55 conditions are met can be addressed if and when reliance is placed upon such arrangements. It is not suggested that this is such a case.

The application of the’ no possibilities’ test

[43]The M&S challenge to the judge’s interpretation finds expression in two passages taken from the skeleton argument filed on its behalf in this Court. First, it is said (at paragraph 60) that:
“60 . . . . In using the word ‘exhausted’ [in the first of the two paragraph 55 conditions] the ECJ is plainly focussing on whether it is possible as a matter of fact for the losses to be used locally. The judgment does not state that a cross-border claim is precluded merely because set-off in the current year or in previous years is legally available under local law in circumstances such as those of the taxpayer. Thus, if a taxpayer, despite there being legally available possibilities of use, is in fact unable to set off the losses in current or past years (e.g. because it has insufficient profits in those years), it has nevertheless “exhausted the possibilities available”
. The first indent is therefore concerned with the actual possibility of use in the light of both the taxpayer’s situation and the theoretical possibilities available under the local law. Otherwise the word “exhausted” would be impossible to understand. Park J’s interpretation is therefore inconsistent with the very wording of the first indent.” Second, while acknowledging that the wording of the second of the paragraph conditions is “more ambiguous”, in that it does not use the word “exhausted”, it is asked, rhetorically, at paragraph 62:
“[62] But why should one think that the ECJ has abruptly switched the actual situation and is now focussing on the theoretical situation under the local law? Why, in contrast to the first indent, should it be irrelevant that the taxpayer will have insufficient profits in subsequent years to make use of any legally available possibilities? A fortiori, given that just about every legal system contains some mechanism for allowing losses to be carried forward, on Park J’s interpretation there could be virtually no case where cross-border loss relief would be possible.”
[44]For my part, I doubt whether Mr Justice Park’s interpretation of the “no possibilities” test, as it is to be applied in relation to the availability, under the local law, of loss relief in relation to the surrender period or previous periods, is inconsistent with the understanding of the test which M&S has set out in the passage (at paragraph 60 of its skeleton) to which I have referred.[45]The first of the two paragraph 55 conditions requires that the non-resident subsidiary should have exhausted the possibilities available in its state of residence of having the losses taken into account for the surrender period or for previous accounting periods. The condition envisages that losses may be taken into account under the local law “by transferring those losses to a third party” or “by offsetting the losses against profits made by the subsidiary in previous periods”. It is clear, therefore, that the Court of Justice had in mind that, under the local law, losses incurred by company A in the surrender period might be taken into account(i) in the computation of the taxable profits of that company for the surrender period,(ii) by way of relief (carry-back) against the profits of company A in a previous accounting period or periods or(iii) by transfer to another company, company B, who could use them to obtain relief against its taxable profits in a period corresponding to the surrender period or in a previous period or periods. Mr Justice Park plainly had that well in mind when making the observations which he did at paragraphs [34] and [35] of his judgment.[46]As I have said, at paragraph [33] of his judgment Mr Justice Park explained that “possibilities available” meant “recognised possibilities legally available given the objective facts of the company’s situation at the relevant time”. The judge explained what he meant by “recognised possibilities” at paragraphs [40] and [41] of his judgment. It was necessary to demonstrate that “none of the generally recognised means of obtaining tax relief in Germany or Belgium for a company’s trading losses existed as possibilities at the relevant time”. It was not necessary to show that there was not “some other possible way of getting relief for the losses which, despite making reasonable enquiries of German and Belgian tax specialists, [M&S] has not thought of and therefore has not eliminated.” But subject to that (with which, I think, M&S can have no quarrel) and, perhaps, to the judge’s emphasis that the possibilities must be legally available (by which he meant available within the domestic law – a point with which, again, M&S can have no quarrel) there seems to me no material difference between the expression used by the judge - “possibilities . . . available given the objective facts of the company’s situation at the relevant time” - and that used by M&S in the skeleton argument - “the actual possibility of use in the light of both the taxpayer’s situation and the theoretical possibilities available under the local law”.[47]There is, perhaps, rather more force in the criticism of the judge’s interpretation of the “no possibilities” test as it is to be applied in relation to the availability, under the local law, of loss relief in relation to future periods. At paragraph [37] of his judgment, when addressing the second of the two paragraph 55 conditions (no availability of carry-forward relief),

the judge observed that:

“the particular circumstances of M&SG and M&SB do not for these purposes include the degree of probability or improbability of them returning to profitability in future”
. He illustrated that view, at paragraphs [37] and [38], by examples. I have set out the text of those paragraphs out earlier in this judgment; but it is convenient to refer, again, to the material passages (with emphasis added):
“[37] . . . Suppose (1) that at the relevant time . . . [M&SG and M&SB] were still trading; (2) that, if they returned to profit in future accounting periods, their losses would, under German and Belgian tax law, have been relievable against the future profits; but (3) that evidence is given on behalf of M&S that there was little or no real likelihood of their returning to profit in the future. In that case the criteria of paragraph 55 of the judgment would not be satisfied: the objective facts were that the company was still trading and the national tax law permitted past trading losses to be set against future trading profits. . . . [38] . . . Suppose that: (1) one of the companies, say M&SG, had already ceased to trade at the relevant time; (2) German tax law, unlike UK tax law, contained provisions under which M&SG’s unrelieved trading losses from its discontinued trade could be carried forward and used against future income or gains from sources other than the trade (like interest on loans); but (3) the evidence is that the M&S group in general, and M&SG in particular, had no intention that the company should ever be in receipt of other income or gains in the future. In that situation also the criteria of article 55 would not be satisfied.”
The judge’s comment, at paragraph [37], explains why he took the view that, in neither example, would the second of the paragraph 55 conditions be satisfied: [37] . . . With reference to the second of the two indents in paragraph 55 it would not be the case that there was no possibility for the losses to be taken into account in Germany and Belgium for future periods: the possibility would exist, even if it was unlikely that it would ever happen.”[48]The judge was clearly correct, if I may say so, to recognise that a possibility can exist even if it is unlikely that it will ever happen. It is, I think, plain that the Court of Justice did not intend that the test posed by the second of the paragraph 55 conditions would be satisfied if the claimant did no more than demonstrate that it was improbable or unlikely, or that there was little or no real likelihood, or that the claimant (or the surrendering company) had no intention, that losses could or would be set against future profits. In my view the examples which the judge gave cannot be said to be flawed. The danger, I think, is that more may be read into the judge’s observation that “the particular circumstances of M&SG and M&SB do not for these purposes include the degree of probability or improbability of them returning to profitability” than, perhaps, he intended.[49]In my view M&S is correct in its contention that there is no reason to think that the test under the second condition is of a different nature from that under the first; that is to say, that there is no reason why the test under the second condition should not have regard to “the objective facts of the company’s situation at the relevant time”. So that, if on an objective appraisal of the surrendering company’s situation, the proper conclusion is that there is no real possibility for losses incurred in the surrender period to be taken into account in its state of residence for future periods, either by the surrendering company or by a third party, then the second of the paragraph 55 conditions is satisfied. Given the context, the phrase “no possibility” in the second condition is to be read as “no real possibility”; in the sense that a real possibility is one which cannot be dismissed as fanciful. It is, perhaps, unnecessary to add that a test of “no real possibility” is not to be equated with a test of “little or no real likelihood”. As I have said, the judge was correct in his view that a possibility may exist even where there is little or no real likelihood that the event will happen.[50]It is because – and only because – I think that there is some danger that more may be read into the judge’s observation that “the particular circumstances of M&SG and M&SB do not for these purposes include the degree of probability or improbability of them returning to profitability” than, perhaps, he intended that I would allow the M&S appeal to the extent of varying the order of 11 April 2006 by deleting the words “to determine it in the light of the judgment of the High Court” from paragraph 2[51]As I have said, the submissions advanced by M&S in this Court went beyond the issues which had been addressed by the judge. First, it was said that the Community law principle of effectiveness requires that the period during which M&S is permitted to make a claim for group relief - and to demonstrate that, at the time when the claim is made, there is no possibility that the losses of the surrendering company will be used in the state of residence – be extended so far as necessary to allow a claim for relief to be made within a reasonable time after the date on which its community right to make group relief claims in respect of non-resident subsidiaries was established. It is accepted, I think, that (prima facie at least) that date would be the date (13 December 2005) on which the judgment of the Court of Justice in Case C-446/03 was handed down; although M&S may seek to argue for a later date – being the date on which “it is made aware of the precise nature of [the paragraph 55] requirements”. M&S relied, in support of that submission, on observations in this Court in Condé Nast Publications Ltd v Customs and Excise Commissioners [2006] EWCA Civ 976, in particular at paragraph [49].[52]It appears from paragraph 9 of the agreed Statement of Facts appended to the decision of the special commissioners that the group relief claims at issue in the present case were made by M&S on 31 March 2000 (for 1998), on 31 March 2001 (for 1999) and on 24 September 2001 (for 2000 and 2001). The claims were rejected by the revenue by decisions dated 13 August 2001(for 1998 and 1999) and 2 November 2001 (for 2000 and 2001). M&SG and M&SB had each ceased trading by 31 December 2001 (paragraphs 5 and 7 of the agreed statement of facts).[53]I have explained, earlier in this judgment, that (both under the Pay and File regime and under the Self Assessment regime) a claim for group relief may be withdrawn and replaced by another claim: paragraph 6 in schedule 17A TA 1988, paragraph 73 in schedule 18 FA 1998. Time limits apply: paragraphs 2 to 5 in schedule 17A, paragraph 74 in schedule 18. But, under both the Pay and File regime and the Self Assessment regime, the revenue has power to extend time (paragraph 4 in schedule 17A, paragraph 74(2) in schedule 18). It may be that, by the date that the decision of the Court of Justice was handed down on 13 December 2005, M&S was out of time to make new claims for group relief in respect of the accounting periods ending on 31 March 1998 and 1999. But the point has not been argued and I do not decide it. We do not know whether M&S has sought to make new claims in the light of the judgment of the Court of Justice; nor what (if M&S has done so) the revenue’s response has been.[54]For my part, I would accept that the decision of this Court in Condé Nast does provide support for the proposition that the Community law principle of effectiveness requires that the period during which M&S is permitted to make new claims for group relief be extended so far as necessary to allow those claims to be made within a reasonable time after 13 December 2005. If M&S is permitted to (and does) make a new claim (or claims) for group relief, then it follows from the conclusion that I have reached earlier in this judgment that M&S will have the opportunity to demonstrate that, on the facts as they are at the date that the new claim (or claims) is or are made, there is no possibility that the losses of the surrendering company will be used in the state of residence.[55]We were invited to vary the order made on 11 April 2006 so as to direct that “as a minimum Marks and Spencer must be given a reasonable period following the time it is made aware of the precise nature of the [paragraph 55] requirements in which to meet them”. I do not think it appropriate to include a direction in those terms. First, as I have said, we do not know whether M&S has sought to make new claims in the light of the judgment of the Court of Justice; nor what (if M&S has done so) the revenue’s response has been in relation to time limits. Second, we were informed that the decision of this Court in Condé Nast was the subject of an appeal to the House of Lords. And third, we do not know whether or not the special commissioners will take the view that, on the facts as they were when the claims which are in issue were made, the paragraph [55] conditions are satisfied. It seems to me more sensible to leave the matter on the basis that the special commissioners will decide the appeal (when remitted to them) – and any application by M&S to bring in new claims on the appeal – on the facts which are then before them and with such guidance as they may obtain from the judgments in this Court and (of course) the decision of the House of Lords in the Condé Nast appeal.

Disapplication

[56]By way of what, I think, may fairly be described as its “fall-back” position, M&S submitted that the judgment of the Court of Justice requires the automatic disapplication of the rule in the group relief code which required surrendering companies to be resident in the United Kingdom (or, after 2000, carrying on a taxable trade in the United Kingdom). It is said that the issue raises “a very important general question as to the impact of Community Law where domestic legislation is not compliant”. That question, it is said, was not addressed by the Court of Justice in Case C-446/03; and may require a further reference to the Court of Justice for a preliminary ruling.[57]In my view it is not arguable that the judgment of the Court of Justice requires the automatic disapplication of the rule in the group relief code which requires that the surrendering company be resident in the United Kingdom (or to be carrying on a taxable trade here). The Court of Justice has held, in terms, that the rule is not incompatible with the EC Treaty. The position is stated, correctly, by the revenue in the skeleton argument filed on its behalf on 8 November 2006. After referring to paragraph [56] in the judgment of the Court of Justice, it is said (at paragraph 19):
“19 . . . There can be no breach of Articles 43 and 48 EC unless the parent company demonstrates to the relevant tax authority that the conditions set out in paragraph 55 of the judgment are fulfilled. If those conditions are not fulfilled, the resident parent company could never demonstrate that they were. There could, therefore, never be a breach of Articles 43 and 48 EC. If there is no breach of the Treaty, then there can be no question of any provisions being disapplied. It is only where the conditions in paragraph 55 are fulfilled that it would be a breach of Articles 43 and 48 EC to prevent the surrender of losses. In those circumstances the resident requirement which would otherwise prevent the losses being surrendered would be disapplied.”
As Lord Nicholls of Birkenhead pointed out in Autologic plc v Inland revenue Commissioners [2005] UKHL 54, [37]; [2006] 1 AC 118, 131G-H, (a group relief case):
“[37] . . . Where Parliament has assigned to a specialist tribunal responsibility for adjudicating on disputes over the payment of [benefits of which the applicant claims he is entitled under directly applicable provisions of Community law but of which he has been wrongly deprived] . . . [that] tribunal will give effect to the applicant’s rights under directly enforceable provisions of Community law as well as his rights under domestic law. The tribunal will afford him the benefits to which he is properly entitled.”
I am not persuaded that the decision of this Court in Fleming v Customs and Excise Commissioners [2006] EWCA Civ 70; [2006] STC 864 requires a different conclusion.[58]I would reject the application made on behalf of M&S for a further reference to the Court of Justice. For my part, I think that the position is now clear in this Court. The House of Lords will have the opportunity to seek a further ruling on the point (if it thinks it necessary) in the context of the appeal in Fleming which is now before it.

Conclusion

[59]I would dismiss the revenue’s appeal. I would dismiss the M&S appeal, save to the extent which I have indicated. I would decline to make a further reference to the Court of Justice.[60]I agree.[61]I also agree.

Cited in 8 later judgments