Marks & Spencer plc v David Halsey (Her Majesty's Inspector of Taxes).

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• Writing for the Court: Gulmann
• ECLI: ECLI:EU:C:2005:763
• Docket Number: C-446/03
• Date: 13 December 2005
• Procedure Type: Reference for a preliminary ruling

Case C-446/03

Marks & Spencer plc

v

David Halsey (Her Majesty's Inspector of Taxes)

(Reference for a preliminary ruling from the High Court of Justice of England and Wales, Chancery Division)

(Articles 43 EC and 48 EC – Corporation tax – Groups of companies – Tax relief – Profits of parent companies – Deduction of losses incurred by a resident subsidiary– Allowed – Deduction of losses incurred in another Member State by a non-resident subsidiary – Not included)

Summary of the Judgment

Freedom of movement for persons – Freedom of establishment – Tax provisions – Corporation tax – Tax relief – National provisions preventing the deduction by a parent company of the losses incurred in another Member State by a subsidiary established in that State – Lawfulness – Limits

(Arts 43 EC and 48 EC)

As Community law now stands, Articles 43 EC and 48 EC do not preclude provisions of a Member State which generally prevent a resident parent company from deducting from its taxable profits losses incurred in another Member State by a subsidiary established in that Member State although they allow it to deduct losses incurred by a resident subsidiary.

However, it is contrary to Articles 43 EC and 48 EC to prevent the resident parent company from doing so 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, in particular where the subsidiary has been sold to that third party.

(see para. 59, operative part)

JUDGMENT OF THE COURT (Grand Chamber)

13 December 2005 (*)

(Articles 43 EC and 48 EC – Corporation tax– Groups of companies – Tax relief – Profits of parent companies – Deduction of losses incurred by a resident subsidiary– Allowed – Deduction of losses incurred in another Member State by a non-resident subsidiary – Not included)

In Case C-446/03,

REFERENCE for a preliminary ruling under Article 234 EC from the High Court of Justice of England and Wales, Chancery Division (United Kingdom), made by decision of 16 July 2003, received at the Court on 22 October 2003, in the proceedings

Marks & Spencer plc

v

David Halsey (Her Majesty’s Inspector of Taxes),

THE COURT (Grand Chamber),

composed of V. Skouris, President, P. Jann, C.W.A. Timmermans and A. Rosas, Presidents of Chambers, C. Gulmann (Rapporteur), A. La Pergola, J.‑P. Puissochet, R. Schintgen, N. Colneric, J. Klučka, U. Lõhmus, E. Levits and A. Ó Caoimh, Judges,

Advocate General: M. Poiares Maduro,

Registrar: K. Sztranc, Administrator,

having regard to the written procedure and further to the hearing on 1 February 2005,

after considering the observations submitted on behalf of:

– Marks & Spencer plc, by G. Aaronson QC and P. Farmer, Barrister,

– the United Kingdom Government, by M. Bethell, acting as Agent, with R. Plender QC and D. Ewart, Barrister,

– the German Government, by W.-D. Plessing and A. Tiemann, acting as Agents,

– the Greek Government, by K. Boskovits and V. Kyriazopoulos, and also by I. Pouli and S. Trekli, acting as Agents,

– the French Government, by G. de Bergues and C. Jurgensen-Mercier, acting as Agents,

– Ireland, by D.J. O’Hagan, acting as Agent, with E. Fitzsimons SC and G. Clohessy, BL,

– the Netherlands Government, by H.G. Sevenster, S. Terstal and J. van Bakel, acting as Agents,

– the Finnish Government, by A. Guimaraes-Purokoski, acting as Agent,

– the Swedish Government, by A. Kruse, acting as Agent,

– the Commission of the European Communities, by R. Lyal, acting as Agent,

after hearing the Opinion of the Advocate General at the sitting on 7 April 2005,

gives the following

Judgment

1 This reference for a preliminary ruling concerns the interpretation of Articles 43 EC and 48 EC.

2 The request was submitted in proceedings between Marks & Spencer plc (‘Marks & Spencer’) and the United Kingdom tax authority concerning the latter’s rejection of a claim for tax relief by Marks & Spencer, which sought to deduct from its taxable profits in the United Kingdom losses incurred by its subsidiaries established in Belgium, Germany and France.

National legal context

3 The provisions of national law applicable in the main proceedings are to be found in the Income and Corporation Taxes Act 1988 (‘the ICTA’). They are set out below on the basis of the information provided in the decision for reference.

Liability to corporation tax

4 Under sections 6(1) and 11(1) of the ICTA, corporation tax is charged on the profits of companies which are resident in the United Kingdom or which conduct trading activities in the United Kingdom through a branch or agency.

5 Under section 8(1) of the ICTA, resident companies are charged to corporation tax in respect of their worldwide profits. Under section 11(1), non-resident companies are charged to corporation tax only in respect of the profits attributable to their United Kingdom branches or agencies.

6 Under taxation conventions between the United Kingdom and, in particular, Belgium, Germany and France, the foreign subsidiaries of resident companies, as non-resident companies, fall within the scope of United Kingdom corporation tax in respect of their trading activities only if those activities are conducted in the United Kingdom through a permanent establishment within the meaning of those Conventions.

7 A tax credit system of relieving double taxation is provided for in the United Kingdom.

8 That system has, in particular, the following two aspects.

9 First, a company established in the United Kingdom which conducts trading activities in another Member State through a branch in that State is taxed in the United Kingdom on the profits of that subsidiary and deducts from the tax payable the tax paid in the other Member State, or is allowed to deduct that tax when calculating branch profits or losses in the United Kingdom. The branch trading profits are calculated on United Kingdom tax principles. If a trading loss arose that loss could be set against the profits of the company established in the United Kingdom. Any unrelieved loss may be carried forward to subsequent periods. The fact that the loss may also be relieved in the other Member State against the branch’s future profits does not affect the relief against United Kingdom profits.

10 Second, a company established in the United Kingdom which conducts trading activities in another Member State through a subsidiary established in that State is taxed in the United Kingdom on the dividends paid by that subsidiary and credit is given for the tax paid in the other Member State on the profits out of which the dividend is paid and for any withholding tax. Where controlled foreign company legislation is not applicable, the parent company is not taxed on its non-resident subsidiary’s profits and it cannot set the subsidiary’s losses against its own profits.

11 Under section 208 of the ICTA, dividends received by a parent company established in the United Kingdom from a subsidiary also established in that Member State are not taxed, unlike those paid by a subsidiary established in another Member State.

Group relief for losses

12 In the United Kingdom, group relief allows the resident companies in a group to offset their profits and losses among themselves.

13 Section 402 of the ICTA provides:

‘(1) Subject to and in accordance with this Chapter and section 492(8), relief for trading losses and other amounts eligible for...