Marks & Spencer Plc v Halsey (Case C-446/03)

JurisdictionEngland & Wales
JudgeMr Justice Park
Judgment Date10 April 2006
Neutral Citation[2006] EWHC 811 (Ch)
Docket NumberCase No: CH/2003/APP/0054
CourtChancery Division
Date10 April 2006

[2006] EWHC 811 (Ch)



Royal Courts of Justice

Strand, London, WC2A 2LL


Mr Justice Park

Case No: CH/2003/APP/0054

Marks and Spencer Plc
David Halsey (hm Inspector Of Taxes)

Graham Aaronson QC and Paul Farmer (instructed by Dorsey and Whitney) for the Appellant

Richard Plender QC and David Ewart (instructed by the Solicitor of HM Revenue and Customs) for the Respondent

Hearing dates: 16 & 17 March 2006

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Park



In this judgment I refer to the Appellant Company, Marks and Spencer PLC, as M&S. The case also involves three wholly owned indirect subsidiaries which are incorporated and resident in France, Germany and Belgium. I shall refer to them respectively as M&SF, M&SG and M&SB. I use the abbreviation UK for United Kingdom.


Marks and Spencer is a household name. An agreed statement of facts says that M&S is 'the UK's leading general retailer, selling clothing, food, homeware, and financial services'. At all relevant times M&S itself (the top company in the group and also the group company which carries on most of the UK-based trading operations) had substantial profits which, except to the extent that reliefs for losses or other forms of relief were available to set against them, would be liable to UK corporation tax. In the 1990s M&SF, M&SG and M&SB were separate companies, based in their own jurisdictions and not resident in the UK. They carried on trades which, in the later part of the decade, gave rise to substantial losses. This case is about whether M&S can set off the losses of the three Continental subsidiaries by way of group relief against the profits of its UK trade.


Under the terms of the relevant UK statute, the Income and Corporation Taxes Act 1988 (to which I refer henceforth as ICTA), the losses would not be capable of being set off in that way, since ICTA provided that only losses of a UK resident company (or of a non-resident company that carried on a trade through a UK branch, which none of M&SF, M&SG and M&SB did) could be surrendered by way of group relief. However, M&S contended that the provisions of the domestic UK statute were in that respect contrary to and overridden by rules of European Community law. It made claims for group relief in respect of the losses of the Continental subsidiaries. The Revenue refused the claims.


M&S appealed to the Special Commissioners against the refusals. In 2002 the Special Commissioners dismissed M&S's appeals, holding that the particular provisions in ICTA which were challenged by M&S were not contrary to Community law. M&S appealed to the High Court. In 2003 the appeals came before me, and after a three day hearing I referred to the Court of Justice of the European Communities (henceforth 'the ECJ') the question of whether the relevant provisions of ICTA were or were not contrary to Community law. The ECJ delivered its judgment on 13 December 2005, and the case has now returned to me to be dealt with as appears appropriate in the light of the judgment.


I consider that, for the reasons which I will explain, there could be a difference between M&S's claims for relief in respect of, on the one hand, the losses of M&SF and, on the other hand, the losses of M&SG and of M&SB. In my judgment the effect of the ECJ's decision is that M&S's claim for group relief in respect of the losses of M&SF must fail, and to that extent I will dismiss the appeal from the 2002 decision of the Special Commissioners. However, for detailed reasons which I cannot encapsulate now but will explain later in this judgment, it may be necessary for further investigations to be made into the status in Germany and France of the losses of M&SG and M&SB. As respects those losses I will remit the matter to the Special Commissioners for them to make further findings and then to determine the appeals in light of those findings. It may be possible for M&S and the Revenue to agree the position in the light of what I will say later, and in that case it will not be necessary for there to be a further contested hearing before the Commissioners.

Legislative provisions and ECJ case law


As a matter of purely UK law the group relief provisions are contained in ICTA ss.402 to 413. In almost all respects I need not go into the details of them, since it is agreed that, if the Continental subsidiaries had been resident in the UK, all the conditions for their losses to be group relieved against the profits of M&S would have been satisfied. There could possibly be some detailed points to sort out about the computation of the losses, but they are not relevant to this judgment, which is concerned with more fundamental matters. Accordingly, the only provisions which I need to set out are the following:

i) For accounting periods ending on or before 31 March 2000:

402(2) Group relief shall be available in a case where the surrendering company and the claimant company are both members of the same group.

s.413(5) References in this Chapter to a company apply only to bodies corporate resident in the United Kingdom; …"

As I will describe more fully later, there are four accounting periods of M&S in issue in this case, and the first three of them were covered by the foregoing provisions.

ii) For later accounting periods, including the last of M&S's accounting periods involved in this case, s.402(2) has remained in force, but the part of s.413(5) quoted above was repealed and replaced by the following new subsections of s.402.

"402(3A) Group relief is not available unless the following condition is satisfied in the case of both the surrendering and the claimant company.

(3B) The condition is that the company is resident in the United Kingdom or is a non-resident company carrying on a trade in the UK through a branch or agency."

The change in the statutory provisions makes no difference to this case. Since none of M&SF, M&SG, and M&SB carried on a trade in the UK through a branch or agency, the effect of the UK statute, both in its original form and in its amended form, appeared to be that group relief was not available, because none of those three companies was resident in the UK.


The question is whether that effect was overridden by Community law. There is little to quote by way of specific legislative provisions of Community law. The arguments for M&S all derive from the right of establishment and the case law of the ECJ about it. The right of establishment for corporate businesses arises from the combination of articles 43 and 48 (formerly articles 52 and 58).

" Article 43 Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. [There is a second paragraph of the article which I do not need to quote.]

Article 48 Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. [Again there is a second paragraph which I need not quote.]"


I am not going to review the general body of case law of the ECJ about the right of establishment. It is, I think, widely understood that the court regards the right as infringed, not just by national rules which impose direct restrictions on persons who wish to establish themselves, or to establish subsidiaries, in other Member States, but also by national rules which, while leaving persons free to establish themselves, or subsidiaries, elsewhere, nevertheless attach consequences which can make it disadvantageous or undesirable to do so. In the present case there was no rule of UK law (or of French, German or Belgian law for that matter) which prevented M&S from setting up subsidiaries in France, Germany or Belgium. M&S's argument is that the UK rules whereby it could not obtain group relief for losses made by subsidiaries established by it in other Member States although it could obtain group relief for losses made by subsidiaries established by it in the UK, operated as an indirect disincentive to establishing subsidiaries in other Member States. Therefore, so the argument ran, the UK rule under which it (M&S) could not have group relief for losses made by its subsidiaries in other Member States was contrary to the freedom of establishment, and could not be enforced against it.


The other point to make about the case law of the ECJ is that the reference of this case to that court was made against a background of earlier challenges to national provisions of several Member States which were argued to have indirect effects analogous to that of which M&S complained. Most of those earlier challenges had been upheld and very few of them were rejected. Several decisions upholding challenges to national rules were cited to me at the 2003 hearing that ended with my referring this case to the ECJ. I do not think that I need say much more about them in this judgment, since the present case has now been decided by the ECJ, and the focus of this judgment must be on what the court has now decided.

The facts


There is not much to add to what I said in the Overview at the beginning of this judgment. I repeat that M&S is a UK resident company which earns taxable profits in its large retail trade, and that the three...

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  • Marks & Spencer Plc v HM Revenue and Customs
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 14 October 2011
    ...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 deci......
  • Marks & Spencer Plc v Revenue and Customs Commissioners [SC]
    • United Kingdom
    • Supreme Court
    • 22 May 2013
    ...the United Kingdom. Park J gave effect to the ruling of the ECJ on 10 April 2006: Marks and Spencer plc v Halsey (Inspector of Taxes) [2006] EWHC 811 (Ch), [2006] STC 1235. He held that the "no possibilities" test referred to in para 55 of the ECJ's judgment required an analysis of the re......
  • The Claimants Listed in the Group Register of the Loss Relief Group Litigation Order v The Commissioners for HM Revenue & Customs
    • United Kingdom
    • Chancery Division
    • 11 February 2013
    ...for them to make further findings of fact and finally determine the appeal: see Marks & Spencer PLC v Halsey (Inspector of Taxes) [2006] EWHC 811 (Ch), [2006] STC 1235 (" M&S (Chancery)"). 8 In relation to the no possibilities test, Park J held that when the ECJ referred to "possibilities ......
  • Marks & Spencer Plc v Revenue and Customs Commissioners (No 2)
    • United Kingdom
    • Supreme Court
    • 19 February 2014 its non-resident subsidiary." 11 The matter then returned before Park J in April 2006. In Marks & Spencer plc v Halsey (No 2) [2006] STC 1235 he held that the "no possibilities" test referred to in para 55 required an analysis of the recognised possibilities legally available given the o......
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1 books & journal articles
  • Case Notes
    • United Kingdom
    • Sage Maastricht Journal of European and Comparative Law No. 22-3, June 2015
    • 1 June 2015
    ...High Court (Chancer y Division), CH/2003/APP/0054, Judgment of 10Apri l 2006, Marks & Spence r plc v. Halsey (HM Inspector o f Taxes) [2006] EWHC 811 (Ch), [2006] STC 123; Cou rt of Appeal (Civil Division), C3/2006/1125 and C3/2006/1117, Judgment of 20February 2007, Halsey (HM Inspector o......

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