Commissioners for Her Majesty's Revenue and Customs v Marks and Spencer plc

A company may make successive claims for cross-border group relief for the same losses while the statutory claim period remains open. Each claim is assessed by reference to the circumstances existing when it is made. Earlier claims may be withdrawn once the effective claim is identified.

The EU principle of effectiveness protects existing rights from procedures that make their exercise virtually impossible or excessively difficult. It does not require time for a taxpayer to create circumstances giving rise to a new right after a reasonable limitation period has expired.

Qualifying foreign losses are quantified by identifying unutilised losses under local law and converting them into their UK-law equivalents, including UK timing rules.

M&S sought corporation tax group relief for losses incurred by subsidiaries resident in Germany and Belgium. Domestic legislation generally restricted group relief to domestic losses, but the European Court of Justice had held that exclusion of cross-border relief could be disproportionate where the foreign subsidiary had exhausted every possibility of using its losses in its state of residence.

After proceedings before the special commissioners, High Court, European Court of Justice, First-tier Tribunal, Upper Tribunal and two constitutions of the Court of Appeal, the appeals reached the Supreme Court from [2011] EWCA Civ 1156. An earlier Supreme Court hearing determined that the relevant circumstances were those known when the claim was made.

The remaining questions were whether successive claims for the same losses were permissible, whether effectiveness saved out-of-time pay-and-file claims, and whether the available losses should be calculated using Method E or Method F.

1. Both appeals dismissed. Lord Clarke delivered the unanimous judgment. HMRC's appeals on successive claims and quantification were dismissed. M&S's appeal concerning its pay-and-file claims was also dismissed.

2. The self-assessment provisions in Schedule 18 to the Finance Act 1998 permitted successive claims while the statutory period remained open. Paragraph 73(2), which required an amended claim to be withdrawn and replaced, necessarily contemplated more than one claim. The wider statutory scheme was flexible and dynamic. A taxpayer could therefore withdraw unnecessary earlier claims and rely on a later claim satisfying the no possibilities test. The later claim was assessed by reference to the circumstances existing when it was made.

3. That conclusion was consistent with the balanced allocation of taxing powers. The no possibilities conditions guarded against a taxpayer freely choosing the member state in which losses should be relieved. On the tribunal's findings, the later claims arose after the subsidiaries had ceased trading and entered liquidation. They did not represent such a choice. M&S was entitled to advance all its in-time self-assessment claims.

4. The principle of effectiveness did not preserve the pay-and-file claims. It ensures that existing EU rights are recognised and can be exercised without practical impossibility or excessive difficulty. It does not give a taxpayer additional time to create circumstances from which a new right would arise. A reasonable, non-discriminatory limitation period may expire even though its operation deprives a claimant of an EU right. The six-year-and-three-month period was reasonable, and the relevant pay-and-file claims were time barred.

5. Method E was the correct method of quantification. The unutilised loss was first identified under the law of the subsidiary's state of residence and then converted into its UK-law equivalent. Conversion required UK rules governing both the character and timing of losses. It gave the parent neither more nor less relief than would have been available had the subsidiary been UK resident. Method F would impermissibly deny relief merely because local and UK law recognised the same loss in different accounting periods.

1. United Kingdom Supreme Court: By [2014] UKSC 11, unanimously dismissed HMRC's appeals on issues two and five and M&S's appeal on issue four. At an earlier hearing, the Supreme Court had determined issue one in M&S's favour.
2. Court of Appeal: In [2011] EWCA Civ 1156, reported at [2012] STC 231, dismissed HMRC's appeals on issues one, two and five and dismissed M&S's appeal on issue four.
3. Upper Tribunal: By a decision reported at [2010] STC 2470, held that successive in-time claims were permissible, that the pay-and-file claims were time barred, and that Method E governed quantification.
4. First-tier Tribunal: In [2009] UKFTT 64 and [2009] UKFTT 231 (TC), determined liability and quantum issues following remittal.
5. First Court of Appeal: By a decision reported at [2008] STC 526, upheld Park J's conclusion that the no possibilities test was applied at the date of the claim.
6. High Court: In a decision reported at [2006] STC 1235, Park J applied the no possibilities test at the claim date and remitted the case. Earlier, in [2003] EWHC 1945 (Ch), he referred questions concerning freedom of establishment to the European Court of Justice.
7. Special Commissioners: In [2003] STC (SCD) 70, held that the restriction of group relief had not breached freedom of establishment.