“788. Relief by agreement with other countries (1) If Her Majesty by Order in Council declares that arrangements specified in the Order have been made with the government of any territory outside the United Kingdom with a view to affording relief from double taxation in relation to – (a) income tax, (b) corporation tax in respect of income or chargeable gains, and (c) any taxes of a similar character to those taxes imposed by the laws of that territory, and that it is expedient that those arrangements should have effect, then those arrangements shall have effect in accordance with subsection (3) below. … (3) Subject to the provisions of this Part, the arrangements shall, notwithstanding anything in any enactment, have effect in relation to income tax and corporation tax in so far as they provide – (a) for relief from income tax, or from corporation tax in respect of income or chargeable gains; …”. 66. The NDAs, Articles 24(5) and 25(4), were respectively scheduled to the two Orders in Council. Danish legislation 67. I set out at Appendix 3 some detail on the Danish law as it applies to losses and in particular to the losses in EMDH. 68. The key points are that the consequences of the legislation are that: (a) The losses arising in APE 2001 became time barred in Denmark from31 December 2006 . (b) The losses in APEs 2002 and 2003 were capable of being carried forward indefinitely. (c) Other than in the event of joint taxation, losses can only be used by the Danish tax resident company, ie when the EMDH business was transferred to the PE established by Nordic those losses could not be carried forward to that PE. (d) On final liquidation any balance of unutilised losses is forfeited. The Issues at the Hearing 69. At the outset of the hearing, at a high level, Mr Aaronson identified two separate issues to be determined. In their Skeleton Argument, HMRC had identified five questions that fell to be resolved and Mr Aaronson referred to, and agreed, the relevance thereof. Mr Yates very helpfully suggested that those questions be allocated to the two issues. I have adopted that approach. The First Issue: Is European Law engaged? 70. The issue is: Whether the Exxon Mobil Group structure engages European law, given that the ultimate parent of the Group is in the United States, in a situation where the appellants are all UK resident and the surrendering company is Danish. That Danish subsidiary’s immediate parent is a Luxembourg company and the question is whether the European law rights of that company are infringed relevantly by the refusal to allow CBGR. In that context, do the DTCs in themselves import the rights and obligations of the United Kingdom under European law? 71. The questions to be resolved are: (1) Are the appellants entitled to rely on EU law directly? (2) If not, is there discrimination under the UK/USA Treaties which will entitle the appellants to rely on EU law directly? The second Issue: no possibilities or definitive losses 72. The issue is: If European law is engaged, does it require those losses to be available to the appellants on the basis that the “no possibilities” or “definitive losses” test is satisfied? 73. The questions to be resolved are: (3) What is the relevant time for testing the “no possibilities” or “definitive losses” test? (4) Are the losses for 2001 prevented from being considered “definitive” on account of being time-barred in Denmark? (5) If the answer to (3) is the time of making a claim, were the losses of EMDH “definitive” at this time? 74. Both parties were agreed that if no European law freedom is engaged, in a relevant sense, then that is the end of the matter. 75. However, HMRC argue that even if European law is engaged, which they do not accept, nevertheless the decisions in Holmen and Memira mean that the appeal should be dismissed. Holmen 76. As soon as the judgments in Holmen and Memira were issued, HMRC sought dismissal of the appeals on the basis that in these appeals EMDH, which incurred the losses, has an immediate parent in another EU Member State, namely Luxembourg. The issue of an intermediate parent in a different EU Member State from the EU Member State where a loss making subsidiary exists was considered in both cases, and they were both decided on the same basis. However, for ease of reference where the same issue is addressed in each case, I refer only to Holmen. 77. The Court held that it is permissible (justifiable and proportionate) to deny CBGR in those circumstances. 78. In that regard HMRC rely on paragraph 29 of Holmen : “[29] It is not therefore disproportionate for a Member State to make cross-border tax relief conditional on a direct link, even if the other impossibilities referred to in paragraph 55 of the judgment in Marks & Spencer have been met, and all the less so since the exception provided for in that paragraph applies, in any event, to the Member State of the subsidiary directly owning the sub-subsidiary which would be the subject of a claim for cross-border relief for the losses of that sub-subsidiary.” 79. Further it was also held at paragraph 33 that the concept of “final losses” within the meaning of paragraph 55 of Marks & Spencer does not apply where, as in this case, an intermediate parent is in a different EU Member State from the EU Member State where a loss-making subsidiary exists. 80. Paragraph 33 of Holmen reads: “[33] Consequently, the answer to the first question is that the concept of final losses of a non-resident subsidiary, within the meaning of paragraph 55 of the judgment in Marks & Spencer , does not apply to a sub-subsidiary unless all the intermediate companies between the parent company applying for group relief and the sub-subsidiary sustaining losses that could be regarded as final are [not] [7] established in the same Member State.” 81. The first and obvious point to make is that both judgments make extensive reference to Marks & Spencer which is unsurprising since in: (a) Holmen, the questions referred to the CJEU were set out at paragraph 17 and the first was: “ (1) In order for a parent company in one Member State to have the right — which follows from the (judgment in Marks & Spencer ), — on the basis of Article 49 TFEU to deduct final losses in a subsidiary in another Member State, is it necessary that the subsidiary be directly owned by the parent company?” (b) Memira, the first question sought clarity in regard to “definitive losses” in the context of the judgment of the CJEU in Re A Oy [8] (“A Oy”) , which itself referred to and relied extensively on Marks & Spencer. 82. In both cases the judgments are in line with the Advocate General’s Opinions issued in January 2019. In the introductions to both Opinions, in line with her previously oft expressed reservations about Marks & Spencer [9] , she points out the problems with “final losses”, the lack of clarity giving rise to the repeated references to the CJEU and states that if the CJEU wishes to adhere to the “final losses” exception then it had the opportunity to “refine this category” ie the Marks & Spencer exception . 83. She makes it explicit in her Opinion in Holmen that the first question concerns the interpretation of the judgment in Marks & Spencer and the judgment also makes that explicit. 84. Similarly, in her Opinion in Memira she points out that, although the referring court focuses primarily on A Oy, that case applied the findings in Marks and Spencer. Beyond reciting the referred question the judgment makes no reference to A Oy but refers to Marks & Spencer. 85. In both cases the formal Rulings refer explicitly to paragraph 55 of Marks & Spencer. 86. It is clear that both cases do indeed further refine and develop CJEU case law on CBGR and final losses. 87. In particular, the CJEU clarified that the losses of sub-subsidiaries may be considered final only if the intermediate parent companies are situated in the same Member States as the sub-subsidiary. The CJEU further concluded that the losses would not be characterised as final before the completion of a subsidiary’s liquidation if there was a possibility that they could be transferred to a third party. In that regard, the existence of certain local provisions restricting the transfer of losses in the subsidiaries’ Member State is irrelevant. 88. What these two cases establish is that for losses to qualify as final losses in the context of Marks & Spencer , specific domestic law restrictions in the subsidiary’s state of residence are irrelevant. The parent company must provide concrete evidence that the subsidiary has no possibility of using its existing losses, including following the sale of its shares to a third party. 89. In Holmen, the CJEU allows the extension of the principles established in Marks & Spencer to losses of sub-subsidiaries, provided specific conditions are fulfilled, namely, that all intermediary companies in the chain are resident in the same Member State. 90. In Holmen the CJEU explained that the requirement for direct ownership was needed in order to prevent the double use of losses and to prevent cherry picking in which State to apply losses. However, whilst the CJEU found the direct ownership requirement was justified in principle, nevertheless it was disproportionate for Sweden to preclude the possibility of the parent company taking into account the final losses of a non-resident subsidiary, if the intermediary subsidiaries between the Swedish parent and (in this case) the Spanish sub-subsidiary are all established in the same Member States. In Holmen the intermediate subsidiary was in the same Member State. Marks and Spencer 91. In summary, the effect of Marks & Spencer is that CBGR is not required in principle by the fundamental freedoms with the consequence that losses arising abroad would be forfeited and therefore not available for use by other members of the group. However, implementing the principle of proportionality, CBGR is available but only in the case of final losses. 92. The detail is that a restriction of freedom of establishment which limited the right of a parent company to deduct the losses of a foreign subsidiary established in another Member State, whereas the losses of a resident subsidiary could be deducted, was justified by the need to: (a) preserve the balanced allocation of the power to impose taxes between Member States, (b) prevent the risk of losses being used twice, and (c) prevent tax avoidance. 93. However, notwithstanding the fact that that is justified in principle, it is disproportionate for the Member State of the parent company to preclude the possibility of the parent company utilising the losses of a non-resident subsidiary that were classified as final. 94. Losses are final where the non-resident subsidiary has: (a) 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 of the subsidiary in previous periods, and (b) there was 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 had been sold to the third party. The parties’ submissions The appellants’ arguments 95. Essentially, the appellants argued that far from requiring the Tribunal to dismiss the appeal the only proper course open to the Tribunal was to refer the EU law issues to the CJEU for a preliminary opinion on the basis that: (a) In Marks & Spencer the structure before the Court was that of a shareholding made through an intermediary holding company in a different Member State. (b) The proceedings in Marks & Spencer were before the Grand Chamber of the CJEU, comprising 13 judges, and there was nothing in that judgment to suggest that loss relief is automatically precluded by the inter-position of an intermediary holding company in a different Member State. Therefore Marks & Spencer appears to be in direct conflict with the judgment in Holmen (given by the First Chamber comprising 5 judges) as Holmen does not seem to have taken into account the fact that the Grand Chamber in Marks and Spencer had not viewed the interposition of an intermediate holding company as significant. That should be the subject of an early reference. (c) The Tribunal is bound by the decisions of the Supreme Court in M&S 2013 [10] and M&S 2014 and the Supreme Court was aware that the loss-making subsidiaries were held through a Netherlands intermediate holding company. (d) The Tribunal’s only option, based on Elchinov [11] , is to either follow the Supreme Court to the effect that the interposition of an intermediary holding company in a different Member State does not automatically preclude the availability of CBGR or make a preliminary reference. (e) Lastly, it was argued that until August 2019, HMRC had not suggested that the existence of the Luxembourg parent company of EMDH had any relevance to the proceedings. Further HMRC had not addressed whether, under Luxembourg law, loss relief would have been available to the intermediate holding company, were that company to have had loss making Luxembourg subsidiaries. Unless, as a matter of domestic Luxembourg law, there was the availability of loss relief then there could be no possible grounds in EU law for it to claim CBGR. That would render the Holmen case completely irrelevant. HMRC’s arguments 96. HMRC argue that: (a) Paragraph 33 of Holmen makes it explicit that the concept of “final losses”, within the meaning of paragraph 55 of Marks & Spencer, does not apply where, as here, an intermediate parent is in a different EU Member State from the loss making subsidiary. (b) The appellants are not even indirect parents of EMDH. They are at best only sister companies so any claim is weaker than that of an indirect parent. (c) Marks & Spencer did not consider the question of indirect holdings because the CJEU had not been asked about it. (d) Advocate General Kokott’s Opinion, the Commission, the Netherlands and Sweden had all drawn the First Chamber’s attention to the factual matrix in Marks & Spencer and clearly the First Chamber did not consider that undisputed factual matrix to form part of the ratio decidendi in Marks & Spencer . (e) Furthermore, at paragraphs 74-78 in her Opinion, (which are quoted at paragraph 102 below) Advocate General Kokott had expressly addressed the potential apparent inconsistency when pointing out the factual matrix in Marks & Spencer . She had argued that nothing could be inferred from the fact that the relevance of the intermediate company had not been debated in Marks & Spencer . (f) There is no conflict between Holmen and the two UK Supreme Court decisions. Just as in Marks and Spencer, in neither of their two decisions had the Supreme Court considered an intermediate chain of holdings. Therefore there is no binding authority requiring the Tribunal to apply the no possibilities test where there are non-resident intermediate holdings. (g) There is no lack of clarity in the decision in Holmen; paragraph 33 makes the position explicit. It is acte clair [12] and therefore there is no requirement for a reference [13] and the Tribunal must apply Holmen. (h) HMRC have always argued the relevance of the existence of an intermediate parent established in Luxembourg and in particular that there is no evidence to the effect that the UK rules have infringed the Luxembourg parent’s freedom of establishment. Discussion 97. These two cases address the compatibility of Sweden’s tax treatment of foreign losses with EU law and provide additional guidance on the application of Marks & Spencer and, in particular, the interpretation of “final losses”
“25 . In their submissions on Levob and Deutsche Bank in particular, both parties invited us to draw conclusions from the underlying facts of those cases…. 26. We regarded such reasoning by analogy as being of limited utility since decisions of the ECJ serve to give guidance on the interpretation of EU law so that their principles, rather than their facts, are relevant.” 100. I also observe, in passing, that Moses LJ in the Court of Appeal in Marks & Spencer v HMRC (“M&S 2”) [15] , when analysing what the CJEU decided in Marks & Spencer pointed out at paragraph 11 that the Court was looking to the tax regime and “…not to the particular facts of the subsidiary’s case”. 101. I may say, in that context, that, having checked the German term and found that it meant “a feeling of melancholy and world weariness”, I had every sympathy with his observation at paragraph 10 that the fact that Marks & Spencer , and that was only in 2012, “…has been subjected to repeated analysis…may induce Weltschmerz…” ! It is no different now. 102. I agree with HMRC that the CJEU in Marks & Spencer did not examine the question of indirect holdings because it had not been asked about that point. It was simply not argued. I set out an excerpt from Advocate General Kokott’s Opinion in Holmen at paragraphs 74 to 81 which covers this point at paragraph 75 and then moves on to another aspect that I also cover below at paragraph 109: “ 74. The Marks & Spencer exception for final losses does not differentiate, as regards final losses, between subsidiaries and sub-subsidiaries. At first glance, it would thus permit both the group’s parent company and the intermediate subsidiary to set off losses against the final losses in the sub-subsidiary. 75. The Marks & Spencer judgment also related to an indirect chain of holdings, as is rightly pointed out by Holmen and the Commission. The sub-subsidiary, the parent company (a holding company) and the grandparent company (group parent company) in that case were even resident in three different Member States. This is only apparent from the request for a preliminary ruling and the Opinion of the Advocate General, however. ( sic ) (42) It is not mentioned in the facts in the judgment, nor is it examined by the Court. 76. However, it appears excessive to me, contrary to the view taken by the Commission and in agreement with the Netherlands and Sweden, to infer from this that the Court implicitly ruled that the group’s parent company must also be able to use the (final) losses in a sub-subsidiary. The Court did not have to examine this question more closely in that case because it had not been asked about this point. 77. Above all, however, such an approach would result in a right to choose within a group, which could decide in which Member State a subsidiary or a parent company will use the ‘final’ losses in the sub-subsidiaries. 78. In particular, if all three companies were resident in different Member States and there were profits to be set off, this right to choose would be important with a view to optimising the group tax rate. As the Member States participating in the proceedings rightly assert, however, such a right to choose cannot exist. It would also jeopardise the preservation of the balanced allocation of the power to impose taxes between Member States. In addition, there is a risk that the losses could be used in more than one Member State. 79. As it is still possible in principle to set off losses in another Member State for the direct parent company, there is a fundamental precedence for setting off losses against the direct parent company over setting off losses against the indirect parent company (in this case the group’s parent company in Sweden). That precedence also avoids the abovementioned risks of a right of choice for the taxable person and the possibility of double use of losses in three State scenarios. 80. That precedence applies even where — as here — the sub-subsidiary and the subsidiary are resident in the same Member State. In this case there is no risk of optimisation of the group tax rate by selecting the Member State in which losses are set off, as Holmen rightly argues. Likewise, an increased risk of multiple use of losses is ruled out. Here too, however, the crucial question is not whether the subsidiary and the sub-subsidiary are resident in the same country, but whether final losses exist for the sub-subsidiary in relation to the parent company in the other Member State. As stated above, however, that is not the case. 81. The answer to the first question is therefore that the losses in an indirectly owned company (a sub-subsidiary) do not in principle constitute final losses in relation to the ‘grandparent company’ (the parent company of the subsidiary).” 103. I accept HMRC’s argument that, as explained by Advocate General Kokott, and impliedly accepted by the CJEU, clearly, nothing can be inferred from the fact that the relevance of an intermediate company was not disputed in Marks & Spencer . 104. It is evident from the repeated references to Marks & Spencer in both Holmen and Memira that it was at the centre of both these judgments. The referring Court in Holmen specifically asked for a determination based on the reasoning in Marks & Spencer in relation to cross-border use of losses within a group with entities in different EU Member States. That was done in the full knowledge of the factual matrix in Marks & Spencer. 105. Of course the Supreme Court was aware of the existence of the residence of the intermediate companies. Having carefully read the decisions I can find nothing in the ratio decidendi to suggest that that was a factor that was even, in popular parlance, “on the radar” in looking at the “no possibilities” test, just as it had not been in Marks & Spencer. 106. Lastly, I find that HMRC have always focussed on the relevance of the Luxembourg parent company. In fact, I observe that it was Mr Aaronson who stated at the outset that: “…there is a group structure which, on the face of it, doesn’t seem to engage European law although there is a wrinkle in that the Danish subsidiary is owned by a Luxembourg company so maybe the Luxembourg company’s European rights are infringed, but that’s a very secondary argument.” 107. In closing submissions, Mr Aaronson very fairly conceded: “Would we succeed on the group structure from the perspective of the Luxembourg parent of the Danish company? It’s not such a strong case…”
“ 31. In those circumstances, the risks of optimisation of the group tax rate by choosing in which Member State the losses are set off and of the use of losses multiple times correspond to those noted by the Court in paragraphs 45 to 52 of the judgment in Marks & Spencer .” 109. Clearly, the CJEU had adopted the arguments of Advocate General Kokott at paragraphs 77 to 80 which I have set out at paragraph 102 above. She makes it explicit that it is a point of principle that is being considered. I therefore agree with HMRC. Decision in relation to the application of Holmen 110. During the course of the Hearing both Mr Aaronson and Mr Yates, very appropriately, referred to the evolution of the jurisprudence of the CJEU. Holmen and Memira are precisely that. It is clear to me that the Court adopted the Advocate General’s invitation to “refine” the category of “final losses” as described in Marks & Spencer. 111. I do not perceive any conflict between these cases and Marks & Spencer . Firstly, the fact that these were decided by the First Chamber is not a relevant factor. 112. In both Holmen and Memira the CJEU made it clear that a claimant company carries the burden of proof in demonstrating that the losses are indeed final and when. In regard to the Luxembourg parent company I know almost nothing. The appellants argue that unless as a matter of domestic Luxembourg law there was availability of loss relief then Holmen is irrelevant . As a group, as they allege, that would be information within the appellants’ purview. They have adduced no evidence. 113. Secondly, it is very evident that in every stage of their deliberations, as evidenced by the references in Memira to Marks & Spencer rather than to Re A Oy , (see paragraph 85 above) the CJEU were focussed on elucidating Marks & Spencer. In my view, much needed clarity has been shed on the nature and extent of the Marks & Spencer exception. I find that it is indeed acte clair and there is no need for a further reference. 114. The wording of paragraph 33 of Holmen with the deletion of the word “not”, which it is agreed was an error in the English translation, is very clear. 115. That being the case, and, at this juncture, ignoring the fact that the ultimate parent company was American, since the intermediate parent companies were not established in the same Member State as EMDH, the appeal falls to be dismissed. If I am wrong on the application of Holmen, what of the other issues? The first issue: Is European Law engaged? Question 1: Are the appellants entitled to rely on European law directly? 116. Section 402 ICTA applies on its own terms (in other words loss relief would not be available since the claimant and surrendering companies are not both resident in the UK) unless relief is given via a conforming interpretation to ensure that the legislation is compatible with the TFEU. 117. Such a conforming interpretation can only arise if the appellants can establish that either they or their parent companies can rely on an exercise of freedom of establishment (see paragraph 55 above). The territorial scope of this freedom is limited to companies incorporated under the laws of Member States or the EEA States and obviously that does not include the USA. 118. The appellants correctly argue that there is no blanket requirement that the exercise of a Treaty freedom that is restricted has to be that of the appellants. For that proposition they relied in their Skeleton Argument on the decisions in HMRC v Philips Electronics UK Ltd [16] (“Philips”) and Felixstowe Dock and Railway Company Ltd and others v HMRC [17] (“Felixstowe”). 119. At the hearing Mr Aaronson did not expand upon the reference in the Skeleton Argument to Philips and Felixstowe in relation to that proposition. However, for other reasons, Mr Yates very properly referred me to the letters from HMRC dated5 May 2017 . 120. I can see from those letters that the appellants had contended that the CJEU rulings in Philips and Felixstowe had extended claims for CBGR from the situation of a UK parent company claiming relief for the loss of its EU/EEA subsidiary (linear relief) to permitting a UK subsidiary of a UK parent to rely on the parent’s freedom of establishment and claim the loss of its sister EU/EEA company in the place of its parent (sideways relief). 121. I observe that both Philips and Felixstowe concerned the UK law on consortium relief and the surrender of UK losses to a UK resident company. Neither case concerned CBGR. 122. HMRC agree that it is not in dispute that, in some contexts, EU law allows companies to have the ability to rely on the EU rights of other entities in order to challenge a Member State’s laws. They point out that paragraph 23 of Felixstowe applied paragraph 39 of Philips . 123. None of the appellants or their immediate or intermediate parents have exercised the freedom of establishment to set up a secondary establishment in the EU or EEA. Philips and Felixstowe Philips 124. In Philips the UK PE of a Dutch company surrendered losses to a UK resident claimant company. They were not members of the same group for UK group relief purposes albeit for EU law purposes, the ultimate “parent” of both companies was another Dutch company on the basis that it indirectly held 50% plus one share in the Dutch company which had the UK branch. 125. The issue before the CJEU was HMRC’s contention that UK legislation did not permit the taxpayer to set off the losses inter alia on the basis that the Dutch company’s losses could be set off against its profits in the Netherlands or that there was a possibility that that was the case. 126. In summary, the CJEU decided that the UK claimant company was able to rely upon the infringed EU law rights of the Dutch company. It held that: “39. It is, in the present case, of no relevance in that regard that it is not the taxpayer, a company established in the United Kingdom, whose freedom of establishment has been unjustifiably restricted, but rather the non-resident company with a permanent establishment in the United Kingdom. In order to be effective, freedom of establishment must also entail, in a situation such as that in the main proceedings, the possibility that the taxpayer may have the benefit of the group relief set against its profits.”
“39. It is true that the chapter of the Treaty relating to freedom of establishment, unlike the chapter on the free movement of capital, does not contain any provision which extends the scope of its provisions to situations involving a national of a third State established outside the European Union. Its provisions cannot therefore be relied on by a company established in a third state …. 40. However, it does not follow from any provision of European Union law that the origin of the shareholders, be they natural or legal persons, of companies resident in the European Union affects the right of those companies to rely on freedom of establishment. As the Advocate General has observed in point 60 of his opinion, the status of being a European Union company is based, under art 54 of the TFEU, on the location of the corporate seat and the legal order with the companies incorporated, not on the nationality of its shareholders. 41. Furthermore, and in any event, the places of residence of the ultimate parent company and the intermediate companies that control the companies seeking to transfer losses to each other are not of concern to the system of consortium group relief in the United Kingdom as resulting from the legislation at issue in the main proceedings. Apart from the residence condition for the link company, the provisions of the ICTA, in the version in force at the time of the dispute in the main proceedings, are silent as to the location of any other company falling within or standing at the top of the chain of interests between the companies claiming and surrendering losses. Thus, as the United Kingdom government agreed at the hearing, relief such as that claimed in the main proceedings could have been granted, on the basis of the same provisions in a case where the link company was established in the United Kingdom, without this being prevented by the fact that the ultimate parent company and intermediate group companies were established in a third state. 42 . Accordingly, the answer to the questions referred is that Articles 49 TFEU and 54 TFEU must be interpreted as precluding legislation of a Member State under which it is possible for a resident company that is a member of a group to have transferred to it losses sustained by another resident company which belongs to a consortium where a ‘link company’ which is a member of both the group and the consortium is also resident in that Member State, irrespective of the residence of the companies which hold, themselves or by means of intermediate companies, the capital of the link company and of the other companies concerned by the transfer of losses, whereas that legislation rules out such a possibility where the link company is established in another Member State. ” 131. In summary, the CJEU held that the existence of the common non-EU parent did not prevent the UK claimant companies from relying on the infringed EU law rights in respect of the Luxembourg link company. 132. As can be seen, the infringement arose because the UK legislation specified one of the key conditions of relief as being the residence of the link company. There is no such residency requirement for group loss relief, whether cross border or not, for the periods with which we are concerned. The appellants’ arguments 133. The appellants’ core position is that at all relevant times, since UK legislation did not regard residence as relevant when defining a group for the purposes of Section 402 ICTA, the appellants and EMDH were in a group with an ultimate US common parent (by analogy see paragraph 41 of Felixstowe ). 134. There has been an exercise of the freedom of establishment within the group in that EMDH was acquired by its Luxembourg parent and remains wholly owned by it. The appellants are therefore entitled to rely on the freedom of establishment of EMDH and/or its Luxembourg parent. 135. At paragraph 11 of their Skeleton Argument (“the paragraph 11 argument”), the appellants argue that the requirement in Section 402 ICTA that the surrendering company must be UK resident is a restriction on the freedom of EMDH and/or its Luxembourg parent. Group relief is a significant fiscal advantage for the entire group and therefore CBGR should be permitted. 136. At paragraph 12 of their Skeleton Argument (“the paragraph 12 argument”) the appellants correctly state that had EMDH been or become resident in the UK, group relief would have been available. They then go on to argue that “…the choices made by the Luxembourg parent concerning the location of establishment are impacting adversely on the appellants and EMDH. Both the appellants and EMDH are being denied a tax advantage for the group as a whole because the Luxembourg parent company chose to establish EMDH in Denmark.” 137. The “no possibilities” test in the Marks & Spencer exception is satisfied. HMRC’s arguments 138. Essentially, HMRC argue that no relevant EU law rights have been exercised and therefore the Marks & Spencer exception does not even come into play. 139. The decision in Felixstowe turned on the argument that in imposing a residence condition for the link company which connected with the surrendering company the UK had unlawfully discriminated against EU companies in a way that could not be objectively justified. By contrast the group relief conditions impose no residence condition. 140. Quite apart from the residence issue, it is clear from Felixstowe that the UK legislation required the link company to have a connection with the surrendering company ie on the facts of Felixstowe the indirect 50.1% shareholding. There is no such connection between EMDH and its Luxembourg parent and the UK. Therefore neither Felixstowe nor Philips is in point in these appeals . 141. Whilst it is accepted that the Luxembourg parent has exercised its EU law rights in respect of EMDH, UK legislation does not infringe that. 142. The Marks & Spencer exception is of no application in these appeals. At paragraph 56 of Marks and Spencer the CJEU stated that: “56. Where, in one member state, the resident parent company demonstrates to the tax authorities that those conditions are fulfilled, it is contrary to article 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.”
“… In relation to article 24(1) of the OECD model convention, which prohibits discrimination between residents on grounds of nationality, the commentary says that the ‘underlying question’ is whether two residents are being treated differently ‘solely by reason of having a different nationality.’ It does not repeat this observation in relation to article 24(5), but the principle must be the same….”
“36….I agree with the way that the Upper Tribunal dealt with this point at paragraph 19 of its judgment: 'We observe at this point that this crucial part of Lord Hoffmann's reasoning has no relevance to the present case, because the claim for group relief was a claim that only affected the UK tax position of the two UK subsidiaries. The claim had no effect at all on the tax position of the US parent, and the only relevance of the parent company was to establish (or not, as the case may be) the necessary group relationship between the two UK companies which surrendered and accepted the trading losses. It is conceptually quite irrelevant whether the US common parent is within the charge to UK corporation tax or not, in relation to the question of whether two UK tax resident companies are sufficiently connected to each other so as to form a group which permits the surrender of losses from one to another.'” 219. In these appeals, as the parties acknowledge, the claims had no effect on the tax position of the US parent whose only relevance was to establish the group relationship. 220. Of course, in these appeals it is not purely domestic relief of losses. However, should the “no possibilities” test be satisfied then I find that the relevant comparator would be a UK parent imbued with EU rights, as the appellants argue. 221. However, for the reasons given, I do not find that the NDAs are engaged. The second issue: no possibilities or definitive losses Question 3: What is the relevant time for testing no possibilities, ie when are there final losses? 222. HMRC have consistently accepted that the test set out in the first part of the Marks & Spencer exception were met in respect of the EMDH losses but did not accept that the “no possibility” aspect had been met. 223. Whilst HMRC accept that the Supreme Court in M&S 2013 decided that the “no possibilities” test should be applied as at the date of the claim, they look to the new legislation enacted in FA2006 following Marks & Spencer. That applied from1 April 2006 and has no impact on these claims. However, that provided that the “no possibilities” test should be applied immediately after the APE in which the loss arose. 224. The European Commission brought infraction proceedings (“UK”) [29] on the basis that imposing conditions on CBGR by applying the test immediately after the end of the APE was too restrictive. 225. The judgment in UK is short but covers a number of issues. The CJEU set out the United Kingdom legal context, namely: (a) ICTA did not permit losses sustained by non-resident companies to be taken into account, (b) Following the decision in Marks & Spencer, FA2006 amended ICTA allowing CBGR in certain circumstances and that was then reproduced inCorporation Tax Act 2010 (“CTA”), (c)Section 119(4) CTA final losses must be determined “as at the time immediately after the end” of the APE in which the losses were sustained, (d) The Supreme Court in M&S 2013 had determined that, in regard to the pre 2006 legislation, “…interpreted in the light of European Union (“EU”) law…” the relevant date is to look at the circumstances obtaining at the date of the claim. 226. The CJEU was determining two complaints by the Commission that the legislation in FA2006 and CTA breached EU law principles because it (a) made it virtually impossible in practice to obtain CBGR, and (b) precluded CBGR for losses sustained before1 April 2006 (ie the legislation was not retrospective). On the basis that the Commission had failed to prove its case neither complaint was upheld. 227. The outcome of that case was that the CJEU held that after 2006 it was lawful for the UK to apply the “no possibilities” test to losses immediately after the accounting period in which the losses arose. It also provided further guidance at paragraphs 33 and 36 as to the type of loss that would not meet the Marks & Spencer exception. 228. HMRC argue that, of course, that guidance was not before the Supreme Court in M&S 2013 and, had it been, then that case would have been decided differently. Whilst HMRC acknowledge that UK related to FA2006 they argue that it represents the CJEU’s interpretation of the freedom of establishment set out at Articles 49 and 54 of TFEU and as such has declaratory effect which means that it also applies to prior legislation such as Section 402 ICTA. 229. I do not agree. 230. At paragraph 42 in its penultimate substantive paragraph the CJEU stated: “ In response to the Commission’s argument, the United Kingdom contends that cross-border group relief is also available for periods before1 April 2006 , but that it is governed by the legislation applicable to those earlier periods, construed in accordance with EU law following the judgment in Marks & Spencer … as was the intention of the Supreme Court of the United Kingdom in its judgment of22 May 2013 , referred to in paragraph 7 above.” 231. The final substantive paragraph before the complaint is rejected states that, irrespective of any argument on legal certainty (which was not explored), the Commission had failed to prove its case. 232. Clearly the CJEU recognised the detail of M&S 2013 and its impact on pre 2006 losses , since it made it explicit at paragraph 7 that the Supreme Court had found that relevant date was the date of the claim for cases before FA2006 came into effect. 233. There is nothing in UK that even starts to suggest that the Supreme Court decision was in conflict with EU law. 234. Therefore I reject HMRC’s, admittedly ingenious, argument that the effect of UK is to retrospectively permit re-interpretation of Section 402 ICTA and thereby render the decision in M&S 2013 irrelevant. 235. Accordingly, I find that the relevant time for testing “no possibilities”, namely when there are final losses, is at the date of the claim. Question 4: Are the losses for 2001 prevented from being considered definitive on account of being time-barred in Denmark? 236. As I indicate at paragraph 229 above, in UK the CJEU provided guidance on the type of loss that would not meet the Marks & Spencer exception and found at paragraph 33 that: “ It should be noted, however, that the first of those situations referred to by the Commission is irrelevant for the purposes of assessing the proportionality ofSection 119(4) of the CTA 2010. It is settled law that losses sustained by a non-resident subsidiary cannot be characterised as definitive, as described in paragraph 55 of the judgment in Marks & Spencer by dint of the fact that the Member State in which the subsidiary is resident precludes all possibility of losses being carried forward (see judgment in K , paragraphs 75 to 79 and the case-law cited). In such a situation, the Member State in which the parent company is resident may not allow cross-border group relief without thereby infringing Article 49 TFEU. 237. HMRC argue that the liquidation of EMDH in 2013 is irrelevant as the 2001 losses were time barred by 2006 in terms of Danish law and therefore on the basis of paragraph 33 of UK the losses cannot fall within the Marks & Spencer exception. 238. The appellants correctly argue that in the APE 2001, in respect of which the claims arise, until 2006 the losses were capable of being carried forward. They distinguish that position with the facts in K where there was never any possibility of losses as the “particularity” of the domestic law had no concept of losses for the type of asset involved. 239. I observe that in K at paragraph 75 the CJEU referred to the Marks & Spencer exception and went on to say that “…irrespective of the considerations of fact…” the taxpayer could not be regarded as having “exhausted the possibilities” (the wording in paragraph 55 of Marks & Spencer ) since the possibility of losses did not exist and never had existed. 240. The CJEU went on to find that: “79. According to the Court’s case-law, a Member State cannot be required to take account, for the purposes of applying its tax law, of the possible adverse consequences arising from particularities of legislation of another Member State applicable to a property situated in the territory of that State which belongs to a resident in the first State (see, by analogy,Case C-298/05 Columbus Container Services[2007] ECR I-10451 , paragraph 51;Case C-293/06 Deutsche Shell[2008] ECR I-1129 , paragraph 42; and Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt , paragraph 49). 80. The free movement of capital cannot be understood as meaning that a Member State is required to adjust its tax rules on the basis of those of another Member State in order to ensure, in all circumstances, taxation which removes any disparities arising from national tax rules, given that the decisions made by a taxpayer as to investment abroad may be to the taxpayer’s advantage or not, according to circumstances (see, by analogy, Deutsche Shell , paragraph 43; and Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt , paragraph 50).” 241. Mr Aaronson argues that there is doubt as to what constitutes a “particularity”, relying on Advocate General Kokott’s Opinion at paragraph 40 for UK . Firstly, that Opinion was rejected although that does not make that paragraph invalid. 242. Secondly, it can be seen that the CJEU has relied on paragraphs 49 and 50 of Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt [30] . Paragraph 49 reads in very similar terms to paragraph 79 of K but specifically with the substitution of the words “permanent establishment” for the word “property” in the third line. 243. However, paragraph 50, which is again expressed in similar terms to paragraph 80 of K is very relevant here since we are dealing with freedom of establishment. It reads: “ The Court has held that freedom of establishment cannot be understood as meaning that a Member State is required to draw up its tax rules on the basis of those in another Member State in order to ensure, in all circumstances, taxation which removes any disparities arising from national tax rules, given that the decisions made by a company as to the establishment of commercial structures abroad may be to the company's advantage or not, according to circumstances ( Deutsche Shell , paragraph 43).” 244. It seems clear to me that in respect of the 2001 losses, for all intents and purposes, the possibility of losses did not exist from 2006. Therefore, as in K, the possibility could not be exhausted. Therefore, neither at APE 2001 could they be definitive nor as at the date of the claim. 245. The answer to the fourth question therefore is that the losses for 2001 are prevented from being considered definitive because they were time-barred in Denmark. Question 5 : If the answer to (3) is the time of making a claim, were the losses of EMDH definitive at this time? 246. In both Holmen and Memira the CJEU made it clear that a claimant company carries the burden of proof in demonstrating that the losses are indeed final and when. Essentially, as the Court makes clear at paragraphs 38 to 40 of Holmen the appellants would need to establish the point at which there was no possibility of losses being used by a third party. The Court also confirmed that domestic law restrictions on the use of losses in the jurisdiction of the subsidiary (or sub-subsidiary) are not decisive in determining whether the jurisdiction of the claimant company must grant loss relief. 247. HMRC’s argument is that the relevant losses have only become purportedly “definitive” following the intragroup transfer of EMDH’s business to Nordic which thereafter operated a PE in Denmark. The underlying business continued to be profitable (as highlighted by the fact that prior year losses continued to be partially utilised up to and including 2012). It is HMRC’s case that EU law would not require the UK (assuming that there were EU rights in play) to provide loss relief for such losses since: (i) they have only become purportedly “definitive” as a result of an internal reorganisation, and/or (ii) the fact that Danish tax law does not allow such losses to be carried forward into the successor PE does not make them “definitive” for the purposes of EU law. 248. Undoubtedly not all of the CJEU decisions referencing the Marks & Spencer exception are totally aligned. However, notwithstanding the many years of controversy and Advocate General Kokott’s dislike of it, quite apart from Philips, Felixstowe, and A Oy, since 2018 Bevola, NN [31] , Holmen and Memira. have all not only endorsed but also clarified it. For example NN, which deals with the use of Danish losses in Denmark (although the parents are Swedish) extends the Philips line of authority on domestic losses and I have discussed Holmen and Memira at length. 249. The appellants rely on paragraph 64 of Bevola to define what Mr Aaronson describes as the “essence” of the Marks & Spencer exception. 250. However, I think that that paragraph needs to be read in context. The CJEU started with asking whether the losses were definitive and stated at paragraph 58: “Where there is no longer any possibility of deducting the losses of the non-resident permanent establishment in the member state in which it is situated, the risk of double deduction of losses no longer exists”. 251. The Court went on to discuss whether the legislation went beyond what was necessary to pursue the objectives and stated that the deduction of losses can be allowed only on condition that the resident company demonstrates that the losses it wishes to set off against its results are definitive and I quote the following paragraphs: “60 . However, in order not to compromise the coherence of the Danish tax system, the maintenance of which was one of the reasons for the adoption of the legislation in question, deduction of such losses can be allowed only on condition that the resident company demonstrates that the losses it wishes to set off against its results are definitive (see, to that effect, judgments of13 December 2005 , Marks & Spencer , C‑446/03, paragraph 56, and of3 February 2015 , Commission v United Kingdom , C‑172/13, paragraph 27). 61. In this respect, it must show that the losses in question satisfy the requirements set out by the Court in para 55 of the judgement of13 December 2005 , Marks & Spencer , to which the referring court rightly refers in its question. 62. Thus, in para 55 of that judgement, the Court held that a restriction of freedom of establishment imposed by the legislation of a member state is disproportionate in the situation in which, first, 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 of release and also for previous accounting periods and, second, there is no possibility of the losses being 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. 63. The criterion of the definitive nature of the losses, within the meaning of para 55 of the judgement of13 December 2005 , Marks & Spencer , was explained in para 36 of the judgement of3 February 2015 , Commission v UK . It follows that the losses incurred by a non-resident subsidiary may be characterised as definitive only if that subsidiary no longer has any income in its member state of residence. So long as that subsidiary continues to be in receipt of even minimal income, there is a possibility that the losses sustained may yet be offset by future profits made in the member state in which it is resident. 64. It follows … that the losses attributable to a non-resident permanent establishment become definitive when, first, the company possessing the establishment has exhausted all the possibilities of deducting those losses available under the law of the member state in which the establishment is situated and, second, it has ceased to receive any income from that establishment, so that there is no longer any possibility of the losses being taken into account in that member state.” 252. Firstly, there is a very clear reference to, and endorsement of, paragraph 56 of Marks & Spencer (and paragraph 27 of UK which refers to it). Therefore the arguments articulated at paragraphs 142 and 143 above apply since there is no “parent” or indeed “grand-parent” relationship in these appeals. On that basis alone the Marks & Spencer exception does not apply to these losses. 253. If I am wrong on that, at paragraph 163 it does indeed make it clear that, as Mr Aaronson said, UK “amplified”