Revenue and Customs v Marks and Spencer plc

Factual and Procedural Background

Company A owned two continental subsidiaries—Company B in Germany and Company C in Belgium. Both foreign companies generated trading losses between 1998 and 2002, ceased trading in 2001 and were liquidated in 2007. Between 2000 and 2008, Company A lodged several claims with Authority A for cross-border group relief, seeking to offset the subsidiaries’ losses against its own United Kingdom profits. Authority A rejected every claim, arguing that domestic legislation restricted group relief to losses incurred by United Kingdom-resident companies or, after the Finance Act 2000, by United Kingdom branches of non-resident companies.

The dispute has already passed through multiple judicial stages: Special Commissioners, High Court, first Court of Appeal, First-tier Tribunal, Upper Tribunal and a second Court of Appeal. Earlier national litigation prompted a preliminary reference to the Court of Justice of the European Union (CJEU) in Case C-446/03, after which domestic proceedings resumed and generated further UK judgments. The present Supreme Court appeal concerns five outstanding issues. At this stage the Court addressed only the first issue because Company A withdrew its request for a fresh CJEU reference following the CJEU’s judgment in Case C-123/11 (A Oy).

Legal Issues Presented

1. Whether EU law precludes cross-border group relief only when, on the facts existing at the end of the accounting period in which the losses arose, there was no possibility of utilising those losses in the subsidiary’s Member State (position of Authority A), or when, on the facts existing at the date of the claim, there has been no such possibility in the past, present or future (position of Company A).
2. Whether sequential or cumulative claims may be made for the same losses in respect of the same accounting period.
3. Whether partial relief is available where a subsidiary can use some, but not all, of its losses.
4. Whether the EU principle of effectiveness requires fresh “pay-and-file” claims to be admitted despite domestic time limits.
5. The correct method of quantifying the losses available for transfer.

Arguments of the Parties

Company A’s Arguments

• The relevant date for applying the CJEU’s “no possibilities” test is the date of the claim, permitting a realistic factual assessment.
• Choosing the end of the accounting period would make relief practically unattainable because most foreign tax systems permit some future offset of losses at that stage.
• The CJEU’s decision in A Oy confirms that later factual developments (e.g., liquidation) may be considered and that taking legitimate commercial steps to satisfy the test does not threaten the balanced allocation of taxing powers.
• The balanced-allocation justification is safeguarded by the strict conditions in paragraph 55 of Case C-446/03, not by freezing the inquiry at an earlier date.

Authority A’s Arguments

• Fixing the test at the end of the accounting period prevents a taxpayer from choosing the Member State in which to claim relief, thereby protecting the balanced allocation of taxing powers among Member States.
• Allowing later events to be considered would create an unacceptable option for taxpayers to manipulate circumstances after losses crystallise.
• A Oy involved a pre-transaction ruling and does not undermine the principled approach adopted by the second Court of Appeal.
• Only “extreme” cases should disturb the allocation of taxing rights; voluntary acts such as liquidation after the accounting period should not qualify.

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Hope, delivering the judgment for the Supreme Court, framed the inquiry as a pragmatic, fact-based exercise. He accepted that authority for restricting cross-border relief derives from the three justifications affirmed in Case C-446/03, but found that those justifications do not necessitate locking the assessment at the close of the accounting period. Instead:

• The “no possibilities” condition must be tested in a way that affords the claimant a reasonable chance to demonstrate that the losses can never be used in the subsidiary’s Member State.
• Choosing the accounting-period cutoff would “hardly ever” permit satisfaction of paragraph 55, effectively nullifying the CJEU’s proportionality safeguard.
• A Oy illustrates that subsequent factual developments—such as liquidation, cessation of trade or exhaustion of carry-forward rights—remain relevant and must be evaluated by domestic courts.
• Permitting consideration of later facts does not, by itself, jeopardize the balanced allocation of taxing powers; the strict paragraph 55 criteria already police potential forum shopping.
• Using the date of the claim provides certainty and avoids shifting factual baselines during litigation while still reflecting the claimant’s actual position.

The Court rejected Authority A’s contention that any taxpayer “choice” automatically disturbs fiscal balance, noting that commercial decisions like winding up dormant subsidiaries are not manipulative when the losses have in fact become incapable of utilisation abroad.

Holding and Implications

HOLDING: The entitlement to cross-border group relief must be assessed on the basis of the circumstances existing at the date of the claim, not at the end of the accounting period in which the losses arose. Authority A’s alternative argument was dismissed.

IMPLICATIONS: The decision reinstates the first Court of Appeal’s approach and clarifies domestic practice for applying the CJEU’s paragraph 55 test. Claimants may rely on factual developments up to the claim date to prove that foreign losses can never be used, while tax authorities must evaluate such evidence rather than disallowing relief automatically. The ruling resolves the first of five issues; the Supreme Court will address the remaining issues in later proceedings. No new precedent beyond the clarified timing point was created.