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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Revenue and Customs v Marks and Spencer plc (Rev 1) [2014] UKSC 11 (19 February 2014) URL: http://www.bailii.org/uk/cases/UKSC/2014/11.html Cite as: [2014] UKSC 11, [2014] 2 All ER 331, [2014] STC 819, [2014] WLR 711, [2014] 1 WLR 711, [2014] STI 682, [2014] BTC 7, [2014] WLR(D) 90 |
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Hilary Term
[2014] UKSC 11
On appeal from: [2011] EWCA Civ 1156
JUDGMENT
Commissioners for Her Majesty's Revenue and Customs (Respondent) v Marks and Spencer plc (Appellant)
Commissioners for Her Majesty's Revenue and Customs (Appellant) v Marks and Spencer plc (Respondent)
before
JUDGMENT GIVEN ON
19 February 2014
Heard on 25 and 26 November 2013
| Appellant David Milne QC Nicola Shaw QC (Instructed by Joseph Hage Aaronson LLP) |
Respondent David Ewart QC Sarah Ford (Instructed by HMRC Solicitors Office) |
|
| Appellant David Ewart QC Sarah Ford (Instructed by HMRC Solicitors Office) |
Respondent David Milne QC Nicola Shaw QC (Instructed by Joseph Hage Aaronson LLP) |
LORD CLARKE (with whom Lord Neuberger, Lord Mance, Lord Reed and Lord Carnwath agree)
Introduction
The issues
"(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 the 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?"
History and background
"55. In that regard, the court considers that the restrictive measure at issue in the main proceedings goes beyond what is necessary to attain the essential part of the objectives pursued where:
(i) 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, if necessary by transferring those losses to a third party or by offsetting the losses against the profits made by the subsidiary in previous periods, and
(ii) there is no possibility for the foreign subsidiary's 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.
56. Where, in one member state, the resident parent company demonstrates to the tax authorities that those conditions are fulfilled, it is contrary to articles 43 EC and 48 EC to preclude the possibility for the parent company to deduct from its taxable profits in that member state the losses incurred by its non-resident subsidiary."
Issues one and three
"In Case C-446/03 Marks & Spencer plc v Halsey, did the ECJ decide that it was contrary to article 43 EC to preclude cross-border loss relief in the member state of the claimant company (a) only where the taxpayer can show, on the basis of the circumstances existing at the end of the accounting period in which the losses in question arose, that there was no possibility of the losses in question being utilised in the member state of the surrendering company in that accounting period, in any previous accounting period or in future accounting period (as HMRC contend), or (b) where the taxpayer can show, on the basis of the circumstances existing at the date of the claim, that there has been no possibility of utilising the losses in the member state of the surrendering company in any accounting period prior to the date of the claim and no possibility of such utilisation in the accounting period in which the claim is made or in future accounting periods (as M&S contend)?"
Issue two
"If the answer to issue 1 is (b), does the date of claim include the date of sequential/cumulative/alternative claims by the same company for the same losses of the same surrendering company in respect of the same accounting period provided that the statutory time period for claiming loss relief remains open?"
Domestic law
"Our overall conclusion with regard to the group relief provisions as they apply in the domestic context under the self-assessment regime is that, whilst they are detailed and prescriptive, they are nevertheless both flexible and dynamic: in broad terms, the 'mechanics' of Schedule 18 FA 1998 are directed so as to achieve the result that, in their final form, the tax returns of the claimant and surrendering companies accurately reflect amounts eventually shown to be available for surrender, as supported by corresponding notices of consent. Further, the processes and adjustments required to reach that final result may continue throughout the period during which it is open for a group company to make a group relief claim (which in practice, under self-assessment, is a generous period). That is all that is required in a self-assessment regime, and the flexibility and dynamism are required where, in large groups of companies with complex tax affairs, adjustments and consequential changes are likely to be inevitable and frequent."
The EU context
"To summarise: in our view, a claimant company seeking group relief in respect of the losses of a foreign group company can make successive claims, provided that all those claims are made within the time limit for claims specified by paragraph 74. It does not have to withdraw an earlier claim before making another claim. The validity of the later claim depends on the facts as they are at the time of the later claim. If the first claim results in no relief being given because at the time that first claim is made the no possibilities test is not fulfilled in respect of any part of the losses in respect of which relief is claimed, a later claim can be made for such amount of those losses as satisfies the no possibilities test as at the time of the later claim. If an earlier claim is valid in respect of part of the losses (because the no possibilities test is satisfied in respect of part) then a later claim can be made for the balance. This, in our view puts the company claiming group relief for the losses of a foreign group company in effectively the same position as though it were claiming such relief for domestic losses, after taking account of those factors and difficulties which are not present in the domestic context. It does not put the claimant company in any better a position (save possibly - and if so, legitimately - in relation to cash flow) than if it waits until the last possible moment within the time limit period to make its claim, that is, the point at which it is most likely to be able to satisfy the no possibilities test."
"Accordingly, we find that the first claims were not valid claims at all. If we are wrong and they had some validity, the Appellant has undertaken to withdraw them and we proceed on that basis."
"57. M&S, which made its first claims at a time when the conditions were not satisfied, and when it could not have known whether the conditions could be satisfied since it could not know what those conditions were, can surely not be worse off than if it had made no claim at all. On the [first] Court of Appeal's understanding of the ECJ's decision, it makes no sense to deprive M&S of the ability to claim cross-border losses merely because its claims were premature. If it should have waited until it could satisfy the paragraph 55 conditions, and it was still in time to make claims to cross-border losses, it is difficult to see why it should lose that opportunity because it made its claims too soon. If the Revenue are correct in their essential argument that the conditions must be applied at the time the losses crystallised then the problem does not arise; no advantage is to be gained by making successive claims. But once it is accepted, as the [first] Court of Appeal accepted, that a claimant may wait between the end of the accounting period in which the losses crystallised and the expiry of the time for making a claim, there is no reason why a claimant should forfeit the right to make a claim merely because it makes the claim too soon. The [first] Court of Appeal has recognised a right to claim based on facts which arise after the end of the accounting period, and before the expiry of the time for making a claim. Since there is no restriction against withdrawing a claim and advancing a new claim within that period, there is no good reason to prevent M&S doing so for the purpose of satisfying the paragraph 55 conditions. To refuse M&S the right to withdraw its earlier claims would put it at an unjustifiable disadvantage as against other potential claimants who have made no claim at all. If the only inhibition on waiting is the time limit for bringing claims, there can be no reason for refusing to allow M&S to withdraw such claims made at a time when the facts do not satisfy the paragraph 55 conditions, and rely on a claim made at a time when they do. The only time limit for such withdrawal is that which is consequent on the time limits within paragraph 74.
58. That result may be achieved, in compliance with paragraph 73, by M&S withdrawing the earlier claims and amending its return to make the claim at a time when the facts do satisfy the conditions in paragraph 55 pursuant to paragraph 75(6) of Schedule 18."
"61. The issue, however, is not one of mechanics but of principle. The Revenue's objection is that a claimant should not be permitted to delay making a claim until it can satisfy the paragraph 55 test and, accordingly should not be permitted to withdraw earlier claims, which do not satisfy that test. But, like the Upper Tribunal, I see no reason why it should not. Either the Schedule permits such a course or it must be moulded for that purpose. Once it is acknowledged, as the Court of Appeal decided, that a claim may be delayed from the accounting period in which the losses claimed crystallised to the end of the time for making a claim, there can be no reason not to permit a series of claims being made. It seems to me that the Revenue's objection can only succeed if they are correct in their essential argument that a claimant cannot rely upon any facts other than those which exist at the time when the losses claimed crystallised. Once it is accepted that facts which arise subsequently, and up to the expiry of the period for making a claim, are relevant, the objection becomes a mere question of machinery.
"The national court will, of course, be alert to the possibility that the company may simply be choosing in which member state it should be taxed. The para 55 conditions are designed to exclude that possibility. But the judgment in A Oy shows that the mere fact that losses can be carried forward at the end of the accounting period in which they arose does not mean that the para 55 conditions cannot be met. Moreover the fact that the merger that was contemplated in that case was not seen as a ground for denying the possibility of taking the losses into account, on the ground that it allowed the parent company to choose freely from one year to the next the tax scheme applicable to its subsidiary's losses, shows that the decisions to wind up MSD and MSB are not open to objection on that ground either. What M&S was doing can be attributed to the fact that the companies had ceased trading six years earlier, and not to the exercise of an option to choose where to seek relief for the losses that had been incurred. There is no reason to think that what it did must be seen as a threat to the balanced allocation of taxing powers. The principle that lies behind HMRC's approach must, of course, be respected. But it does not justify the choice of date for which they contend which, as Park J said, is too soon to give the company a reasonable opportunity of showing that the para 55 conditions are satisfied."
"The second group relief claims were all made during the liquidation. In both Germany and Belgium no new activities can be started once the company is in liquidation; the liquidator's functions are to pay the liabilities and distribute the assets. In both countries losses can be carried forward to the liquidation and set against income arising during the liquidation. As we have concluded in paragraph 25 above, so far as it can be estimated that there will be such income this can be used to offset the losses, but we find that any losses in excess of such estimated income will satisfy the no-possibilities test."
In para 31 it notes that the third group relief claims were also made during the liquidation but closer to the end of it, two days before final dissolution for MSG and about two weeks before for MSB. As to the fourth claim, which related only to MSB, they noted in para 32 that it was made after the dissolution of the company. In these circumstances the FTT held that the position was the same in the case of each of the second, third and fourth group relief claims because, unlike the first claim, they in principle satisfy the no possibilities test.
Issue four
"Does the principle of effectiveness require M&S in the particular circumstances of the present case to be allowed:
(i) to make fresh 'pay and file' or self-assessment claims once the ECJ identified the circumstances in which losses had to be permitted to be transferred cross-border; and/or
(ii) to make sequential/cumulative/alternative self-assessment claims while the statutory time period for making claims remained open as the legal position became clearer?"
"At the time M&S made its claim to the losses sustained by MSG, it had no community law right to make such a claim. The prohibition against such a claim was lawful because M&S did not satisfy the conditions identified by the ECJ in paragraph 55. The ECJ has espoused the principle that, provided that the time limits are not discriminatory and do not render the exercise of Community law rights virtually impossible or excessively difficult in practice, a Member State may lay down reasonable time limits even if their effect is to deprive a claimant of such a right (Haahr Petroleum v Abenra Havn and Others [(Case C-90/94)] [1997] ECR I-4085, para 48). That case concerned, like Aprile and M&S 1, the propriety of a time limit for claims to repayment. There is no principle that a reasonable time must be afforded to a claimant in which to bring about the circumstances which would generate the Community law right. The error of the FTT lay in the assumption that M&S had a right at the time it made its claim; on the findings of fact, at that time it had no such right and the principle of effectiveness cannot be invoked to create one. In my view the Upper Tribunal was correct and the 'pay and file' claim in respect of MSG is time-barred. I would uphold the decision of the Upper Tribunal."
Issue five
"86. … M&S seeks to set against its UK profits losses sustained by its subsidiary in Germany, as if those losses were sustained by a subsidiary resident in the UK. It claims no more and no less. If the losses had been sustained in the UK, it seems to me that there would be no question of timing differences leading to the loss of relief in respect of a proportion of unutilised losses. The effect of the application of UK tax rules may be to shift losses sustained in Year 2 under German tax rules into Year 1, if the subsidiary had been resident in the UK. Those losses should be afforded relief in Year 1 under UK rules. It is nothing to the point that that would not be the appropriate year under German tax rules. The effect of the application of UK tax rules is to convert the German losses into losses sustained in year 1 to be set against UK profits in the same accounting period, ie year 1. That is not to cut across UK tax principles but to apply them.
87. The consequence of the Revenue's method is to deprive M&S of relief for losses sustained in Germany in circumstances where it would not be refused relief had those losses been sustained in the UK. Method E does not give the parent greater relief than would have been available had its subsidiary been resident in the same state as the parent, whether in Germany or in the UK. It does not seem to me to matter that the losses are allowed in different accounting periods from those in which they would be allowed in Germany. No relief is to be afforded to losses which would not be relieved in the UK. As the FTT put it:
'Once you move from identifying the local losses (computed under local rules) to identifying their equivalent under UK rules, you also have to move from local time of recognition to UK timing of recognition' (para 7)
88. Method E does not result in a group relief claim for an amount more than could be claimed were the subsidiary to have been resident in the UK. The re-allocation of losses to a different period in the UK is merely the result of the application of UK tax law. I would dismiss the Revenue's appeal on this point."
CONCLUSION
ANNEX A
STATUTORY FRAMEWORK
"402 (1) … relief for trading losses and other amounts eligible for relief from corporation tax may … be surrendered by a company ('the surrendering company') and, on the making of a claim by another company ('the claimant company'), may be allowed to the claimant company by way of a relief from corporation tax called 'group relief'.
403 (1) If in an accounting period (the 'surrender period') the surrendering company has –
(a) trading losses, excess capital allowances or a non trading deficit on its loan relationships, or
(b) [certain other charges and expenses] which are available for group relief, the amount may, subject to the provisions of this Chapter, be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period."
(A) The self-assessment regime (applicable to accounting periods ending on or after 1 July 1999)
2. Part VIII of Schedule 18 FA 1998 lays down more detailed provisions on claims under the self-assessment regime. So far as is material the relevant provisions are as follows:
"Claim to be included in company tax return
"67(1) A claim for group relief must be made by being included in the claimant company's company tax return for the accounting period for which the claim is made.
(2) It may be included in the return originally made or by amendment.
Content of claims
68(1) A claim for group relief must specify -
(a) the amount of relief claimed, and
(b) the name of the surrendering company.
(2) The amount specified must be an amount which is quantified at the time the claim is made. …
Claims for more or less than the amount available for surrender
69(1) A claim for group relief may be made for less than the amount available for surrender at the time the claim is made.
(2) A claim is ineffective if the amount claimed exceeds the amount available for surrender at the time the claim is made.
(3) For these purposes the amount available for surrender at any time is calculated as follows.
First step
Determine the total amount available for surrender under section 403 of the Taxes Act 1988 –
(a) on the basis of the information in the company's company tax return, and
(b) disregarding any amendments whose effect is deferred under paragraph 31(3).
Second step
Then deduct the total of all amounts for which notices of consent have been given by the company and not withdrawn.
…
Consent to surrender
70(1) A claim for group relief requires the consent of the surrendering company.
(2) …
(3) The necessary consent or consents must be given--
(a) by notice in writing,
(b) to the officer of the Board to whom the surrendering company makes its company tax returns,
(c) at or before the time the claim is made.
Otherwise the claim is ineffective.
(4) A claim for group relief is ineffective unless it is accompanied by a copy of the notice of consent to surrender given by the surrendering company.
(5) …
Notice of consent
71(1) Notice of consent by the surrendering company must contain all the following details -
(a) the name of the surrendering company;
(b) the name of the company to which relief is being surrendered; (c) the amount of relief being surrendered;
(d) the accounting period of the surrendering company to which the surrender relates;
(e) the tax district references of the surrendering company and the company to which relief is being surrendered.
Otherwise the notice is ineffective.
(2) Notice of consent may not be amended, but it may be withdrawn and replaced by another notice of consent.
(3) Notice of consent may be withdrawn by notice to the officer of the Board to whom the notice of consent was given.
(4) Except where the consent is withdrawn under paragraph 75 (withdrawal in consequence of reduction of amount available for surrender), the notice of withdrawal must be accompanied by a notice signifying the consent of the claimant company to the withdrawal.
Otherwise the notice is ineffective.
(5) The claimant company must, so far as it may do so, amend its company tax return for the accounting period for which the claim was made so as to reflect the withdrawal of consent.
Notice of consent requiring amendment of return
72(1) Where notice of consent by the surrendering company is given after the company has made a company tax return for the period to which the surrender relates, the surrendering company must at the same time amend its return so as to reflect the notice of consent.
(2) Where notice of consent by the surrendering company relates to a loss in respect of which relief has been given under section 393(1) of the Taxes Act 1988 (carry forward of trading losses), the surrendering company must at the same time amend its company tax return for the period or, if more than one, each of the periods in which relief for that loss has been given under section 393(1) so as to reflect the new notice of consent.
For this purpose relief under section 393(1) is treated as given for losses incurred in earlier accounting periods before losses incurred in later accounting periods.
(3) The time limits otherwise applicable to amendment of a company tax return do not prevent an amendment being made under sub-paragraph (1) or (2).
(4) If the surrendering company fails to comply with sub-paragraph (1) or (2), the notice of consent is ineffective.
Withdrawal or amendment of claim
73(1) A claim for group relief may be withdrawn by the claimant company only by amending its company tax return.
(2) A claim for group relief may not be amended, but must be withdrawn and replaced by another claim.
Time limit for claims
[See under (B) below]
Reduction in amount available for surrender
75(1) This paragraph applies if, after the surrendering company has given one or more notices of consent to surrender, the total amount available for surrender is reduced to less than the amount stated in the notice, or the total of the amounts stated in the notices, as being surrendered.
(2) The company must within 30 days withdraw the notice of consent, or as many of the notices as is necessary to bring the total amount surrendered within the new total amount available for surrender, and may give one or more new notices of consent.
(3) The company must give notice in writing of the withdrawal of consent, and send a copy of any new notice of consent -
(a) to each of the companies affected, and
(b) to the Inland Revenue.
(4) If the surrendering company fails to act in accordance with sub-paragraph (2), the Inland Revenue may by notice to the surrendering company give such directions as they think fit as to which notice or notices are to be ineffective or are to have effect in a lesser amount.
This power shall not be exercised to any greater extent than is necessary to secure that the total amount stated in the notice or notices is consistent with the total amount available for surrender.
(5) The Inland Revenue must at the same time send a copy of the notice to the claimant company, or each claimant company, affected by their action.
(6) A claimant company which receives --
(a) notice of the withdrawal of consent, or a copy of a new notice of consent, under sub-paragraph (3), or
(b) a copy of a notice containing directions by the Inland Revenue under sub-paragraph (4), must, so far as it may do so, amend its company tax return for the accounting period for which the claim is made so that it is consistent with the new position with regard to consent to surrender.
…"
(B) Time limits
"(1) A claim for group relief may be made or withdrawn at any time up to whichever is the last of the following dates -
(a) the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made;
(b) if notice of enquiry is given into that return, 30 days after the enquiry is completed;
(c) if after such an enquiry [an officer of Revenue and Customs] [amends] the return under paragraph 34(2), 30 days after notice of the amendment is issued;
(d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.
(2) A claim for group relief may be made or withdrawn at a later time if the Inland Revenue allow it.
(C) Pay and file regime
4. The procedural requirements for making group relief claims for accounting periods ending before 1st July 1999 ("the pay and File years) are set out in Schedule 17A ICTA 1988, paragraphs 2 to 5 of which provide:
"2(1) No claim for an accounting period of a company may be made if-
(a) the company has been assessed to corporation tax for the period, and
(b) the assessment has become final and conclusive.
(2) Sub-paragraph (1) above shall not apply in the case of a claim made before the end of 2 years from the end of the period.
(3) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim.
3(1) No claim for an accounting period of a company may be made after the end of 6 years from the end of the period, except under paragraph 5 below.
(2) This paragraph applies to the withdrawal of a claim as it applies to the making of a claim.
4 Where under paragraph 2 or 3 above a claim may not be made after a certain time, it may be made within such further time as the Board may allow.
5(1) A claim for an accounting period of a company may be made after the end of 6 years from the end of the period if -
(a) the company has been assessed to corporation tax for the period before the end of 6 years from the end of the period,
(b) the company has appealed against the assessment, and
(c) the assessment has not become final and conclusive.
(2) No claim for an accounting period of a company may be made … after the end of 6 years and 3 months from the end of the period."