Esso Exploration and Production UK Ltd and Others v Commissioners for Revenue and Customs

JurisdictionUK Non-devolved
Judgment Date04 March 2020
Neutral Citation[2020] UKFTT 139 (TC)
Date04 March 2020
CourtFirst Tier Tribunal (Tax Chamber)

[2020] UKFTT 139 (TC)

Judge Anne Scott

Esso Exploration and Production UK Ltd & Ors
Commissioners for Revenue and Customs

Graham Aaronson QC instructed by Joseph Hage Aaronson LLP appeared for the appellants

David Yates QC and Laura Ruxandu of Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents

Corporation tax – Cross Border Group Relief for losses – FA 1988, Sch. 18 – Marks & Spencer plc v Halsey (HMIT) (Case C-446/03) [2006] BTC 318 exception – Skatteverket v Holmen AB (Case C-608/17) [2019] BTC 33 and Skatteverket v Memira Holding AB (Case C-607/17) [2019] BTC 32 – UK/USA Double Taxation Conventions – OECD commentaries – Sister EU companies – Felixstowe Dock and Railway Company Ltd v R & C Commrs (Case C-80/12) [2014] BTC 19 and R & C Commrs v Philips Electronics UK Ltd (Case C-18/11) [2012] BTC 438 – US ultimate parent – R & C Commrs v FCE Bank plc [2012] BTC 462 – Boake Allen Ltd (including NEC Semi-Conductors Ltd) v R & C Commrs [2007] BTC 414 – No possibilities test – Impact of domestic law – Appeal dismissed.

In Esso Exploration and Production UK Ltd [2020] TC 07620, the First-tier Tribunal found that the taxpayer's cross border group relief were not successful.


This appeal relates to pre-2006 claims by UK resident members of the ExxonMobil group of companies for cross border group relief (“CBGR”) in relation to losses incurred and surrendered by ExxonMobil Denmark Holdings International ApS (“EMDH”),. The claims relied on the principle originally established in Marks & Spencer plc v Halsey (HMIT) (Case C-446/03) [2006] BTC 318 (“M&S”) that, broadly, the fundamental freedoms enshrined in EU law do not allow for CBGR except in the case of “final losses”.

The appellants and EMDH shared a common ultimate parent company, Exxon Mobil Corporation (“EMC”), a US resident company which indirectly owned at least 75% of the group which included the appellants and EMDH. EMDH was resident in Denmark, its immediate parent company was resident in Luxembourg as was the immediate (58%) parent company of that company, however the ultimate link between EMDH and the appellants was only via US resident companies. The link between claimants and surrendering company was remote having regard to the large number of intermediate subsidiaries and subsidiaries. The losses in question had not been utilised for tax purposes in Denmark, or elsewhere, and there was no possibility of them being utilised in Denmark in future periods.

During the course of these proceedings, the ECJ handed down its decision in the cases of Skatteverket v Memira Holding AB (Case C-607/17) [2019] BTC 32 (“Memira”) and Skatteverket v Holmen AB (Case C-608/17) [2019] BTC 33 (“Holmen”) in relation to which the Court held that it is permissible (justifiable and proportionate) to deny CBGR in circumstances where the surrendering company has an immediate parent in another EU member state.

The issues to be addressed by the FTT were as follows:

  • Did the recent Memira and Holmen decisions mean that this case should be dismissed?
  • If not, whether the ExxonMobil group structure engages EU law, given that the ultimate parent is in the US, the appellants are UK resident and the surrendering company is Danish but with a Luxembourg parent company; and
  • If yes, does EU law require those losses to be available to the appellants on the basis that the no possibilities or definitive losses test is satisfied?

In relation to the Memira and Holmen cases, the FTT found that:

  • Holmen and Memira further elucidated the M&S case by refining the meaning of final loss as described in Marks & Spencer;
  • The cases provided much needed clarity on the nature and extent of the M&S exception so that there was no conflict between Holmen and Memira and no need for a further reference to the ECJ;
  • Since the immediate parent companies in the present case were not established in the same state as EMDH, the appeal fell to be dismissed.

In the event that the FTT was wrong on Memira and Holmen, the FTT held in relation to the other issues that:

  • EU law was not directly engaged;
  • the relevant time for determining the outcome of the no possibilities test is at the date of the claim;
  • losses arising in 2001 are prevented from being considered definitive because they were time-barred in Denmark; and
  • that those losses were not definitive at the date of the claim, being unable to be used because of a question of domestic Danish law, which the Marks & Spencer exception, as refined in subsequent cases, does not allow.

This decision denies claims for cross-border group relief under the principles established in Marks & Spencer plc v Halsey (HMIT) (Case C-446/03) [2006] BTC 318 and subsequent case law for losses in the region of £228.7m. The FTT, in considering the position of a Danish resident surrendering company with a Luxembourg resident immediate parent company, followed recent ECJ jurisprudence in the cases of Skatteverket v Holmen AB (Case C-608/17) [2019] BTC 33 and Skatteverket v Holmen AB to deny cross border group relief in circumstances where the surrendering company has an immediate parent in another EU Member State. The FTT held that there was no conflict between these cases and the M&S case, therefore a referral to the ECJ was not necessary in relation to any such perceived conflict.


[1] The appellants are all ExxonMobil group United Kingdom (“UK”) resident companies, established in the UK and subject to UK corporation tax.

[2] They are claiming the right to relief for trading losses, Cross Border Group Relief (“CBGR”), incurred and surrendered, by a company called ExxonMobil Denmark Holdings International ApS which was known as ExxonMobil Danmark ApS from 16 October 2006 (“EMDH”). At all relevant times it was an ExxonMobil group company resident in Denmark.

[3] In 2005, the Grand Chamber of the ECJ ruled in Marks & Spencer plc v Halsey (HMIT)1 (“Marks & Spencer”) that, in principle, the fundamental freedoms enshrined in European law do not allow for CBGR. Losses arising abroad would therefore be forfeited but that the only exception to that rule, on the basis of proportionality, is in the case of “final losses”. Paragraph 55 of that judgment is often called “the Marks & Spencer exception”.

Procedural Background

[4] The claims for CBGR that are the subject matter of these appeals (“the relevant claims”) relate to the losses arising in EMDH in each of the accounting period ending (“APE”) 31 December 2001, 2002 and 2003. For ease of reference hereafter, with the exception of the Tables I simply refer to the APE and the year.

[5] The respondents (“HMRC”) opened enquiries into each of the appellants' company tax returns in respect of the relevant claims. That generated extensive correspondence, much of which debated the legal issues canvassed in these appeals.

[6] HMRC issued Closure Notices, each with a side letter and appendix, in identical terms, to each of the appellants on 22 February 2017 and denied the relevant claims.

[7] On 21 March 2017, the appellants appealed against the refusal of those claims.

[8] On 24 March 2017, HMRC issued an amended side letter and appendix, again in identical terms, to each appellant and offered a review. On 18 April 2017, that was accepted by the appellants.

[9] In letters dated 13 and 19 June 2017, but received on the same date by all of the appellants, the review conclusions, which were in identical terms in both format and reasoning, upheld the original decisions.

[10] On 13 July 2017, the appellants appealed to the Tribunal under paragraph 34(3) of Schedule 18, Finance Act 1998 (“Sch 18”) and subsequently, of consent, in terms of rule 5(3)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”), the appeals were joined to be heard together.

[11] I had uncontested witness statements, with exhibits, from three witnesses, Nigel Phillip Halls, the UK Tax Law & Planning Manager of the ExxonMobil group, Kai Ingmar Slettebakk, Treasurer and Downstream Controller Nordic for the ExxonMobil Group and Arne Møllin Ottosen, an expert witness on Danish tax law.

[12] There were nine bundles of Documentation, three bundles of Authorities, to which there were additions in the course of the Hearing, and two further clips of Authorities. I had the benefit of a transcript of the proceedings.

[13] In HMRC's Skeleton Argument there had been a reference to a draft Amended Statement of Case and an intention to seek leave to amend at the outset of the Hearing which did not materialise. On 16 April 2019, HMRC lodged a Submission seeking leave to amend the Statement of Case by the introduction of a further paragraph directed at all of the years in issue and headed “No possibilities test not satisfied in any event”.

[14] On 30 April 2019, the appellants confirmed that they offered no objection to the amendment although they took issue with one of the arguments advanced in the Submission by HMRC. That argument was predicated on Advocate General Kokott's opinions in Skatteverket v Memira Holding AB2 (“Memira”) and Skatteverket v Holmen AB3 (“Holmen”).

[15] On 19 June 2019, the ECJ handed down the decisions in both of those cases.

[16] On 5 July 2019, HMRC wrote to the Tribunal enclosing a copy of Holmen arguing that the appeals should be dismissed. On 23 July 2019, the appellants lodged a response seeking a reference to the ECJ. On 7 August 2019, HMRC lodged submissions in response thereto.

The factual background
Overview of the appellants

[17] The corporate structure of the ExxonMobil group is not in dispute. It is a very complex worldwide group but there are certain key agreed facts relating to these appeals. (It should be noted that sometimes the wording is ExxonMobil and sometimes Exxon Mobil.)

[18] At all times relevant to these appeals the appellants and EMDH were members of the same international group of companies and...

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