Marks & Spencer Plc v Halsey (HM Inspector of Taxes)

Where determination of a domestic tax dispute requires interpretation of European Union law, the national court may refer the necessary questions to the Court of Justice under Article 234 of the EC Treaty and stay the domestic proceedings pending the preliminary ruling. The reference may address whether domestic group-relief provisions restrict freedom of establishment, whether any restriction is justified, and the significance of possible relief in the subsidiary’s state of residence. The referring court does not determine those substantive questions at the referral stage.

Marks & Spencer plc appealed to the High Court from decisions of the Special Commissioners refusing claims for UK group relief in respect of losses incurred by subsidiaries resident in France, Belgium and Germany. The claims concerned whether the UK legislation, which generally permitted group relief between UK-resident companies but did not permit equivalent surrender of losses incurred by non-UK-resident subsidiaries, was compatible with Articles 43 and 48 of the EC Treaty.

The agreed facts also raised questions about the availability, actual use and subsequent use of loss relief in the subsidiary companies’ respective member states. The High Court considered that a preliminary ruling from the Court of Justice was necessary to determine the dispute.

1. Reference made. The court held that a preliminary ruling concerning the interpretation of the EC Treaty was necessary to enable it to give judgment. It therefore referred questions to the Court of Justice under Article 234 of the EC Treaty.
2. Questions referred. The reference asked whether the UK group-relief provisions restricted the freedom of establishment protected by Articles 43 and 48, whether any restriction was justified under Community law, and what significance should be attached to the possibility or fact of relief in the subsidiary’s member state. The questions covered subsidiaries that had ceased trading, subsidiaries sold to third parties, and the possible subsequent use of losses by an unrelated group.
3. Stay. Further proceedings in the High Court were stayed pending the preliminary ruling. Costs were reserved.

The order determined the procedural course of the appeal. It did not decide whether the UK provisions were compatible with the EC Treaty, whether any restriction was justified, or whether the losses were ultimately available as group relief.

• Special Commissioners: found against Marks & Spencer plc on its claims for group relief.
• High Court (Chancery Division): on appeal, referred questions to the Court of Justice under Article 234 of the EC Treaty and stayed further proceedings pending the ruling.