Precedents Cited

• Marks and Spencer plc v Halsey (Inspector of Taxes) [2003] STC (SCD) 70: Addressed initial group relief claims and compatibility with Article 43 EC.
• Marks and Spencer plc v Halsey (Inspector of Taxes) [2006] EWHC 811 (Ch): Incorporated ECJ's ruling, emphasizing the "no possibilities" test at the date of the claim.
• Case C-446/03 Marks & Spencer Plc v David Halsey [2005] ECR I-10837: ECJ ruling that Article 43 EC does not prohibit UK provisions preventing a parent company from claiming group relief across borders.
• Case C-123/11 Proceedings brought by A Oy: Reinforced the necessity of assessing the conditions for cross-border relief at the claim date.
• Oy AA [2007] ECR I-6373 and Lidl Belgium GmbH & Co KG [2008] ECR I-3601: Further clarified the application of the "no possibilities" test in different contexts.

Legal Reasoning

The Court meticulously analyzed the "no possibilities" test derived from para 55 of the ECJ's judgment. This test stipulates that group relief should be permissible only if:

• The non-resident subsidiary has exhausted all possibilities to utilize the losses in its home state for the relevant accounting period and previous periods.
• There is no potential for utilizing these losses in future periods within the subsidiary's resident state.

The pivotal question was determining the temporal point at which these conditions should be assessed. The Court weighed the arguments for assessing at the end of the accounting period—favored by HMRC to prevent tax avoidance—and at the date of the claim—favored by M&S to allow legitimate cross-border relief.

By referencing prior ECJ rulings, particularly in A Oy, the Supreme Court favored the approach of assessing conditions at the date of the claim. This ensures that companies are evaluated based on the actual ability to utilize losses at the time they seek relief, rather than being constrained by the more restrictive end-of-period assessment.

Impact

The Supreme Court's decision has far-reaching implications for multinational corporations operating within the EU framework. By establishing that the assessment should be made at the date of the claim, the ruling provides greater flexibility for companies to manage their tax liabilities through legitimate cross-border group relief. This decision aligns UK tax law with EU principles on freedom of establishment, fostering a more predictable and balanced tax environment for transnational entities.

Additionally, the judgment reinforces the importance of adhering to EU case law interpretations, especially in areas intersecting with national tax regulations. Future cases involving cross-border group relief will likely reference this decision, shaping the development of tax law both within the UK and potentially influencing broader EU tax jurisprudence.

Group Relief

Group relief allows a parent company to offset the profits of one subsidiary against the losses of another within the same corporate group, thereby reducing the overall taxable income. This mechanism is designed to incentivize efficient allocation of resources within a corporate group and support subsidiaries that may be in financial distress.

Freedom of Establishment (Article 43 EC / Article 49 TFEU)

This principle ensures that companies have the right to set up and operate businesses in any EU Member State under the same conditions as domestic entities. It aims to eliminate barriers to cross-border business activities, promoting a unified and competitive internal market.

No Possibilities Test

A legal test established to determine whether cross-border group relief should be permissible. It assesses whether a non-resident subsidiary has no viable options to utilize its financial losses within its home country, both for the current and future accounting periods. Only when this condition is met can the parent company claim group relief in another Member State.