HM Revenue and Customs v Marks and Spencer Plc

Cross-border group relief for losses of a non-resident subsidiary is available where the paragraph 55 conditions are satisfied. Following the earlier Court of Appeal decision in the same litigation, those conditions are assessed by reference to the facts at the date of the claim, including whether there is a real, rather than fanciful, possibility of future use in the subsidiary’s state of residence.

A claimant may withdraw premature claims and make successive claims within the statutory period. The principle of effectiveness vindicates an existing Community-law right but cannot create one by extending time. Relief is quantified by applying UK tax and timing rules to the foreign losses, subject to the amount that would have been available had the subsidiary been UK-resident.

HM Revenue and Customs and Marks and Spencer Plc appealed decisions of the Upper Tribunal Tax and Chancery Chamber dated 21 June 2010 concerning group relief for losses of Marks & Spencer (Deutschland) GmbH and Marks & Spencer (Belgium) NV.

The disputes concerned the date for applying the paragraph 55 conditions, successive claims, losses only partly capable of use in the foreign state, the effect of the principle of effectiveness on out-of-time claims, and the method of quantifying relief. The appeals arose from earlier decisions in the same litigation, including the Court of Appeal’s First Appeal.

1. Disposition. Permission was granted where required. The Revenue’s appeals on the date of assessment, successive claims, partial utilisation of losses and quantification were dismissed. M&S’s appeal on effectiveness was dismissed.
2. The court was bound by its earlier decision in the same litigation. The paragraph 55 conditions had to be assessed by reference to the facts at the date of claim, not at the end of the accounting period in which the losses crystallised. The future-use condition asks whether, on the objective facts at that time, there is a real rather than fanciful possibility that the losses will be used in future periods in the subsidiary’s state of residence.
3. A claimant may withdraw an earlier claim and make a successive claim to the same losses while the statutory period remains open. Paragraph 69(2) concerned a claim exceeding the amount shown in the surrendering company’s consent; it did not make a claim a nullity merely because the amount later proved excessive. The statutory machinery could, if necessary, be moulded to give practical effect to the cross-border right.
4. The principle of effectiveness vindicates an existing Community-law right; it does not create a right by allowing additional time to bring about the necessary circumstances. Since M&S had no such right when the pay-and-file time limit expired, the relevant claim was time-barred.
5. The no-possibilities test applied on a euro-by-euro basis. The possibility that part of the losses might be used in the foreign state did not preclude relief for the remainder.
6. Method E was correct. UK tax rules, including UK timing rules, were to be applied to the foreign losses. Relief was capped at the amount available had the subsidiary been resident in the UK.

Lord Justices Etherton and Lloyd agreed with Lord Justice Moses.

• Court of Appeal (Civil Division): [2011] EWCA Civ 1156. The court dismissed the Revenue’s appeals on issues (i), (ii), (iii) and (v), and M&S’s appeal on issue (iv), after granting permission where required.
• Upper Tribunal Tax and Chancery Chamber: decision dated 21 June 2010 concerning the availability and quantification of cross-border group relief.
• First-tier Tribunal Tax Chamber: decisions dated 2 April 2009 and 24 August 2009 concerning the group relief claims and the paragraph 55 conditions.