Marks & Spencer Plc v HM Revenue and Customs

JurisdictionEngland & Wales
JudgeLord Justice Moses,Lord Justice Etherton,Lord Justice Lloyd
Judgment Date14 October 2011
Neutral Citation[2011] EWCA Civ 1156
Docket NumberCase No: A3/2010/2182, A3/2010/2255, A3/2010/2218, A3/2010/2192, A3/2010/2554, A3/2010/2249
CourtCourt of Appeal (Civil Division)
Date14 October 2011

[2011] EWCA Civ 1156




Mr Justice Warren, President and Judge Edward Sadler

Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Lloyd

Lord Justice Moses


Lord Justice Etherton

Case No: A3/2010/2182, A3/2010/2255, A3/2010/2218, A3/2010/2192, A3/2010/2554, A3/2010/2249

FTC/04/2009, FTC/05/2009/, FTC/28/2009, FTC/32/2009

The Commissioners for Her Majesty's Revenue and Customs
Marks and Spencer Plc

Mr David Ewart QC and Ms Sarah Ford (instructed by HM Revenue and Customs Solicitors Office) for the Appellant

Mr David Milne QC and Ms Nicola Shaw (instructed by Dorsey & Whitney) for the Respondent

Hearing dates: 8 th-10 th June, 2011

Lord Justice Moses



These applications for permission and appeals by both HMRC (the Revenue) and by Marks and Spencer PLC (M&S) concern claims for group relief in respect of losses of Marks & Spencer (Deutschland) GmbH (MSG), resident in Germany and Marks & Spencer (Belgium) NV (MSB), resident in Belgium. They are appeals from decisions of the Upper Tribunal on 21 June 2010 as to the availability of cross-border group relief and as to the method of quantifying such relief as was available.


A Member State's right to preclude group relief of losses sustained by non-resident subsidiaries and the circumstances in which such a prohibition infringes the right to freedom of establishment and of movement enshrined in Articles 43 and 49 TFEU (ex Arts 43 and 48 EC) are not new issues. Those issues have occupied the Tribunals of this country and the European Court of Justice (now the Court of Justice of the European Union) (together the ECJ)) since 2002. Despite consideration by Special Commissioners, by Park J, who referred preliminary questions to the ECJ, the decision of the ECJ ( Case C-446/03 Marks & Spencer plc v Halsey, 13 December 2005 [2006] Ch 184), the judgment of Park J, analysing that decision [2006] EWHC 811 (Ch), and of the Court of Appeal [2007] EWCA Civ 117 (the First Appeal) (all of which judgments I will refer to as M&S v Halsey), and the decisions of the Tax Chamber (the FTT) on 2 April 2009 and 24 August 2009 and of the Upper Tribunal, those remain unresolved. Not even the judgment of this court, second time around, will provide quietus. There remain other issues to be decided and the likelihood of other appeals. New readers, if any remain, may learn the facts from the detailed findings of the Tax Chamber (FTT) and [6]-[12] of the decision of the Upper Tribunal. The decision of the ECJ has been the subject of detailed analysis by Park J and by this court in the First Appeal. I do not propose to repeat the facts, save where necessary to explain my view, or to set out, yet again, lengthy quotations. I shall assume that there are no new readers but that they have grown old in their pursuit of finality. I shall identify in respect of which issues permission to appeal is required, and who is seeking to appeal when I come to a particular issue.


MSG ceased trading in August 2001 and was dissolved following liquidation on 14 December 2007. MSB ceased trading on 22 December 2001 and was dissolved following liquidation on 27 December 2007. M&S's claims to group relief in respect of MSG's losses for 1996 and 1997, and for MSB's for 1998 and 1999 were governed by the corporation tax pay and file rules in Schedule 17A to the Taxes Act 1988. The FTT dismissed its original claims on the grounds that the ECJ's paragraph 55 criteria (called the 'no possibilities test') were not satisfied and that second and subsequent claims were out of time. M&S assert that those subsequent claims were, by operation of the principle of effectiveness, in time. Claims were made for MSG losses from 1996 to 2002 and for MSB losses for 1999 to 2001 (depending on which of the six methods of calculation adopted, losses arise in different periods). The first group relief claims were made at a time when neither subsidiary was in liquidation, though in the period when they were made, between 2000 and 2003, both had ceased trading. M&S announced the closure of operations on 29 March 2001. MSG ceased trading in August 2001. MSB ceased trading on 22 December 2001. The second claims, on 20 March 2007, were made when both companies were in liquidation, the third, on 12 December 2007, just before both were dissolved, and the fourth, on 11 June 2008, on behalf of MSB following MSB's dissolution. The claims for years from 2000 onwards were governed by the self-assessment rules in Schedule 18 to the Finance Act 1998. They were within statutory time limits, whereas the second to fourth claims in respect of 'pay and file' years were, absent M&S's current contention as to effectiveness, outside statutory time limits.



The following issues arise :—

i) Is the test that the ECJ established to identify those circumstances in which it would be unlawful to preclude cross-border relief for losses, the "no possibilities" test, to be applied (as the Revenue contend) at the end of accounting period in which the losses crystallised rather than (as M&S contends) the date of claim? This question involves deciding whether the Court of Appeal in the First Appeal, reached a binding decision on that issue and whether it remains binding on this court in light of subsequent decisions of the ECJ.

ii) Can sequential/cumulative claims be made (as M&S contends) by the same company for the same losses of the same surrendering company in respect of the same accounting period? The Revenue assert that that is not a question decided by the Court of Appeal and is precluded both by UK fiscal rules and by the underlying jurisprudence of the ECJ.

iii) If a surrendering company has some losses which it has or can utilise and others which it cannot, does the no possibilities test (as the Revenue contend) preclude transfer of that proportion of the losses which it has no possibility of using?

iv) Does the principle of effectiveness require M&S to be allowed to make fresh 'pay and file' claims now that the ECJ has identified the circumstances in which losses may be transferred cross-border, when at the time M&S made those claims there was no means of foreseeing the test established by the court.

v) What is the correct method of calculating the losses available to be transferred?

What did the ECJ decide in M&S v Halsey ?


The Court decided that the UK was entitled to preclude relief for losses sustained in another Member State, save only in circumstances where those losses could not be used in that Member State. Analysis, yet again, of this decision is important. The decision of the ECJ established, so the Revenue contend, the lawfulness of the UK's restriction and left no room for consideration of any circumstances other than those at the time the losses were crystallised; it admitted of no relief other than where those circumstances, objectively judged, demonstrated that losses could not have been utilised in the past and could not be used in the future. In particular, it left no room for an assessment of the individual circumstances of the surrendering company in the future, still less for its motives.


Even if that was not decided by the ECJ in M&S v Halsey, the Revenue submits that that was certainly decided by the ECJ in subsequent cases, thus permitting this court to adopt that approach and follow those cases, even if the Court of Appeal previously decided to the contrary.


The ECJ answered the first part of question 1. It focussed on the group relief provisions within ICTA 1988, which before 2000 restricted losses available for group relief provided in ss 402 and 403 to those surrendered by companies resident in the United Kingdom and, after 2000, to profits and losses within the scope of United Kingdom tax law [17]. The Revenue contend that the key to the ECJ's decision lies in appreciating that it was concerned only with the lawfulness of the UK provisions; the Court was concerned only to determine whether Articles 43 and 48 precluded the restrictions within the United Kingdom group relief provisions. The Court decided that those Articles did not preclude the United Kingdom restrictions save in circumstances where the non-resident subsidiary had exhausted the possibilities of using its losses for previous and future accounting periods in the state where it resided.


The Revenue submit that once the losses of a non-resident subsidiary are crystallised in an accounting period, the only question is whether it is impossible to use those losses in that foreign state. This question should not be answered by reference to any action taken by M&S's subsidiaries in Belgium or Germany after the end of accounting periods in which the losses were suffered. What was required was a determination, once a claim had been made, as to whether the losses claimed came within a category in respect of which a cross-border restriction was compatible with Art 43 or whether, because it was impossible to have used them in previous accounting periods or to use them in future periods, they fell within a category in respect of which the UK was required to permit cross-border relief.


Resolution of many of the issues in this appeal will depend upon whether it is open to this court, in the light of its previous decision, to accept that crucial submission, and if we are not bound by that decision, whether that submission is a correct reading of the judgment of the ECJ.


That the judgment of the ECJ has been subjected to repeated analysis in UK courts and tribunals, may induce...

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1 books & journal articles
  • Case Notes
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    • Maastricht Journal of European and Comparative Law No. 22-3, June 2015
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