“(i) Is the test that the ECJ established to identify those circumstances in which it would be unlawful to preclude cross-border relief for losses, the 'no possibilities' test, to be applied (as the Revenue contend) at the end of the accounting period in which the losses crystallised rather than (as M&S contends) the date of claim? This question involves deciding whether the Court of Appeal in the first appeal reached a binding decision on that issue and whether it remains binding on this court in light of subsequent decisions of the ECJ. (ii) Can sequential/cumulative claims be made (as M&S contends) by the same company for the same losses of the same surrendering company in respect of the same accounting period? The Revenue assert that that is not a question decided by the Court of Appeal and is precluded both by UK fiscal rules and by the underlying jurisprudence of the ECJ. (iii) If a surrendering company has some losses which it has or can utilise and others which it cannot, does the no possibilities test (as the Revenue contend) preclude transfer of that proportion of the losses which it has no possibility of using? (iv) Does the principle of effectiveness require M&S to be allowed to make fresh 'pay and file' claims now that the ECJ has identified the circumstances in which losses may be transferred cross-border, when at the time M&S made those claims there was no means of foreseeing the test established by the court? (v) What is the correct method of calculating the losses available to be transferred?”
“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.”
“InCase C-446/03 Marks & Spencer plc v Halsey, did the ECJ decide that it was contrary to article 43 EC to preclude cross-border loss relief in the member state of the claimant company (a) only where the taxpayer can show, on the basis of the circumstances existing at the end of the accounting period in which the losses in question arose, that there was no possibility of the losses in question being utilised in the member state of the surrendering company in that accounting period, in any previous accounting period or in future accounting period (as HMRC contend), or (b) where the taxpayer can show, on the basis of the circumstances existing at the date of the claim, that there has been no possibility of utilising the losses in the member state of the surrendering company in any accounting period prior to the date of the claim and no possibility of such utilisation in the accounting period in which the claim is made or in future accounting periods (as M&S contend)?”
“If the answer to issue 1 is (b), does the date of claim include the date of sequential/cumulative/alternative claims by the same company for the same losses of the same surrendering company in respect of the same accounting period provided that the statutory time period for claiming loss relief remains open?”
“Our overall conclusion with regard to the group relief provisions as they apply in the domestic context under the self-assessment regime is that, whilst they are detailed and prescriptive, they are nevertheless both flexible and dynamic: in broad terms, the ‘mechanics’ of Schedule 18 FA 1998 are directed so as to achieve the result that, in their final form, the tax returns of the claimant and surrendering companies accurately reflect amounts eventually shown to be available for surrender, as supported by corresponding notices of consent. Further, the processes and adjustments required to reach that final result may continue throughout the period during which it is open for a group company to make a group relief claim (which in practice, under self-assessment, is a generous period). That is all that is required in a self-assessment regime, and the flexibility and dynamism are required where, in large groups of companies with complex tax affairs, adjustments and consequential changes are likely to be inevitable and frequent.”
“To summarise: in our view, a claimant company seeking group relief in respect of the losses of a foreign group company can make successive claims, provided that all those claims are made within the time limit for claims specified by paragraph 74. It does not have to withdraw an earlier claim before making another claim. The validity of the later claim depends on the facts as they are at the time of the later claim. If the first claim results in no relief being given because at the time that first claim is made the no possibilities test is not fulfilled in respect of any part of the losses in respect of which relief is claimed, a later claim can be made for such amount of those losses as satisfies the no possibilities test as at the time of the later claim. If an earlier claim is valid in respect of part of the losses (because the no possibilities test is satisfied in respect of part) then a later claim can be made for the balance. This, in our view puts the company claiming group relief for the losses of a foreign group company in effectively the same position as though it were claiming such relief for domestic losses, after taking account of those factors and difficulties which are not present in the domestic context. Itdoes not put the claimant company in any better a position (save possibly - and if so, legitimately - in relation to cash flow) than if it waits until the last possible moment within the time limit period to make its claim, that is, the point at which it is most likely to be able to satisfy the no possibilities test.”
“Accordingly, we find that the first claims were not valid claims at all. If we are wrong and they had some validity, the Appellant has undertaken to withdraw them and we proceed on that basis.”
“57. M&S, which made its first claims at a time when the conditions were not satisfied, and when it could not have known whether the conditions could be satisfied since it could not know what those conditions were, can surely not be worse off than if it had made no claim at all. On the [first] Court of Appeal's understanding of the ECJ's decision, it makes no sense to deprive M&S of the ability to claim cross-border losses merely because its claims were premature. If it should have waited until it could satisfy the paragraph 55 conditions, and it was still in time to make claims to cross-border losses, it is difficult to see why it should lose that opportunity because it made its claims too soon. If the Revenue are correct in their essential argument that the conditions must be applied at the time the losses crystallised then the problem does not arise; no advantage is to be gained by making successive claims. But once it is accepted, as the [first] Court of Appeal accepted, that a claimant may wait between the end of the accounting period in which the losses crystallised and the expiry of the time for making a claim, there is no reason why a claimant should forfeit the right to make a claim merely because it makes the claim too soon. The [first] Court of Appeal has recognised a right to claim based on facts which arise after the end of the accounting period, and before the expiry of the time for making a claim. Since there is no restriction against withdrawing a claim and advancing a new claim within that period, there is no good reason to prevent M&S doing so for the purpose of satisfying the paragraph 55 conditions. To refuse M&S the right to withdraw its earlier claims would put it at an unjustifiable disadvantage as against other potential claimants who have made no claim at all. If the only inhibition on waiting is the time limit for bringing claims, there can be no reason for refusing to allow M&S to withdraw such claims made at a time when the facts do not satisfy the paragraph 55 conditions, and rely on a claim made at a time when they do. The only time limit for such withdrawal is that which is consequent on the time limits within paragraph 74. 58. That result may be achieved, in compliance with paragraph 73, by M&S withdrawing the earlier claims and amending its return to make the claim at a time when the facts do satisfy the conditions in paragraph 55 pursuant to paragraph 75(6) of Schedule 18.”
“The national court will, of course, be alert to the possibility that the company may simply be choosing in which member state it should be taxed. The para 55 conditions are designed to exclude that possibility. But the judgment in A Oy shows that the mere fact that losses can be carried forward at the end of the accounting period in which they arose does not mean that the para 55 conditions cannot be met. Moreover the fact that the merger that was contemplated in that case was not seen as a ground for denying the possibility of taking the losses into account, on the ground that it allowed the parent company to choose freely from one year to the next the tax scheme applicable to its subsidiary's losses, shows that the decisions to wind up MSD and MSB are not open to objection on that ground either. What M&S was doing can be attributed to the fact that the companies had ceased trading six years earlier, and not to the exercise of an option to choose where to seek relief for the losses that had been incurred. There is no reason to think that what it did must be seen as a threat to the balanced allocation of taxing powers. The principle that lies behind HMRC's approach must, of course, be respected. But it does not justify the choice of date for which they contend which, as Park J said, is too soon to give the company a reasonable opportunity of showing that the para 55 conditions are satisfied.”
“The second group relief claims were all made during the liquidation. In both Germany and Belgium no new activities can be started once the company is in liquidation; the liquidator’s functions are to pay the liabilities and distribute the assets. In both countries losses can be carried forward to the liquidation and set against income arising during the liquidation. As we have concluded in paragraph 25 above, so far as it can be estimated that there will be such income this can be used to offset the losses, but we find that any losses in excess of such estimated income will satisfy the no-possibilities test.”
“Does the principle of effectiveness require M&S in the particular circumstances of the present case to be allowed: (i) to make fresh ‘pay and file’ or self-assessment claims once the ECJ identified the circumstances in which losses had to be permitted to be transferred cross-border; and/or (ii) to make sequential/cumulative/alternative self-assessment claims while the statutory time period for making claims remained open as the legal position became clearer?”
“At the time M&S made its claim to the losses sustained by MSG, it had no community law right to make such a claim. The prohibition against such a claim was lawful because M&S did not satisfy the conditions identified by the ECJ in paragraph 55. The ECJ has espoused the principle that, provided that the time limits are not discriminatory and do not render the exercise of Community law rights virtually impossible or excessively difficult in practice, a Member State may lay down reasonable time limits even if their effect is to deprive a claimant of such a right (Haahr Petroleum v Abenra Havn and Others [(Case C-90/94 )][1997] ECR 1-4085, para 48). That case concerned, like Aprile and M&S 1, the propriety of a time limit for claims to repayment. There is no principle that a reasonable time must be afforded to a claimant in which to bring about the circumstances which would generate the Community law right. The error of the FTT lay in the assumption that M&S had a right at the time it made its claim; on the findings of fact, at that time it had no such right and the principle of effectiveness cannot be invoked to create one. In my view the Upper Tribunal was correct and the 'pay and file' claim in respect of MSG is time-barred. I would uphold the decision of the Upper Tribunal.”
“86. … M&S seeks to set against its UK profits losses sustained by its subsidiary in Germany, as if those losses were sustained by a subsidiary resident in the UK. It claims no more and no less. If the losses had been sustained in the UK, it seems to me that there would be no question of timing differences leading to the loss of relief in respect of a proportion of unutilised losses. The effect of the application of UK tax rules may be to shift losses sustained in Year 2 under German tax rules into Year 1, if the subsidiary had been resident in the UK. Those losses should be afforded relief in Year 1 under UK rules. Itis nothing to the point that that would not be the appropriate year under German tax rules. The effect of the application of UK tax rules is to convert the German losses into losses sustained in year 1 to be set against UK profits in the same accounting period, ie year 1. That is not to cut across UK tax principles but to apply them. 87. The consequence of the Revenue's method is to deprive M&S of relief for losses sustained in Germany in circumstances where it would not be refused relief had those losses been sustained in the UK. Method E does not give the parent greater relief than would have been available had its subsidiary been resident in the same state as the parent, whether in Germany or in the UK. It does not seem to me to matter that the losses are allowed in different accounting periods from those in which they would be allowed in Germany. No relief is to be afforded to losses which would not be relieved in the UK. As the FTT put it: ‘Once you move from identifying the local losses (computed under local rules) to identifying their equivalent under UK rules, you also have to move from local time of recognition to UK timing of recognition’ (para 7) 88. Method E does not result in a group relief claim for an amount more than could be claimed were the subsidiary to have been resident in the UK. The re-allocation of losses to a different period in the UK is merely the result of the application of UK tax law. I would dismiss the Revenue's appeal on this point.”
“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 may be made after the end of 6 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 may 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 for the period before the end of 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.”