ECJ finds UK tax rules incompatible with EC law

A European Court of Justice (ECJ) opinion handed down this morning (7 April) has found that UK tax law is incompatible with European Community law.

Advocate General Poiares Maduro gave his opinion in the case of Marks & Spencer v Halsey, finding that the retailer should be allowed to offset losses made in Europe through its UK operation.

The Inland Revenue – through tax inspector David Halsey – had argued that its group relief scheme, enabling a parent company to offset the losses made by subsidiaries, did not apply where those subsidiaries were based abroad. In the ECJ hearing the Revenue was supported by representations from Finland, France, Germany, Greece, Ireland, the Netherlands and Sweden.

But the Advocate General said that this rule is incompatible with European legislation. His opinion will now guide the decision of ECJ judges, whose judgment is awaited.

Marks & Spencer’s (M&S) case is the first major European victory in a series of tax cases referred to the ECJ by UK courts. Dorsey & Whitney partner Simon Whitehead, instructing Graham Aaronson QC of Pump Court Tax Chambers, acted for M&S and the firm is also leading the Loss Relief Group Litigation currently proceeding through the High Court.

Richard Plender QC of 20 Essex Street was instructed by the Inland Revenue.