Today, the European Commission has decided to refer the UK to the ECJ over improper implementation of an ECJ ruling on cross-border loss relief – the "Marks & Spencer" ruling.
In 2005, the ECJ ruled that the UK's group relief provisions breached the EU freedom of establishment. According to the Court "it is contrary to Articles 43 EC and 48 EC to prevent the resident parent company from [deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State] 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".
Consequently, the UK has had to amend its law, namely the 1988 Income and Corporation Taxes Act (ICTA).
The European Commission noted that the UK amended its legislation after the judgement, however, according to the Commission, the UK has not, correctly, implemented the ECJ ruling, as “it continues to impose conditions on cross-border group loss relief which, in practice, make it very difficult to benefit from.”
If the Court considers that its judgment has not been complied with, it may impose a lump sump or penalty payment on the UK.
