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CJEU Decision In Philips Electronics Group Relief Case

Wednesday 12th September 2012

The CJEU has recently issued its judgment in the case of Philips Electronics UK Ltd v HMRC [C-18/11] and this follows the opinion of the Advocate General in favour of the taxpayer in April 2012.

The case concerned the UK company’s claims to offset its share [50%] of the losses of the UK branch of a Dutch company against its profits, under the consortium relief rules. HMRC rejected the claims on the grounds that the requirements of the UK rules were not met, in particular because the losses could be deducted against non UK profits, i.e. of the Head Office.

The Advocate General had previously opined that

(1)      It is a restriction on the freedom of establishment granted by Article 43 EC and Article 48 EC for a Member State to prevent the surrender of the losses incurred in that Member State by a resident permanent establishment of a non-resident company to a resident company by way of group relief where any part of those losses, for the purposes of any foreign tax, is in any period deductible from or otherwise allowable against non-domestic profits of the company or any other person.

(2)      That restriction is not capable of being justified on the basis of either the preservation of the allocation of taxing powers between Member States or the prevention of the double use of losses, or by a combination of both objectives.

(3)      In a situation like that in the main proceedings, a Member State is required to disapply a provision which is contrary to Article 43 EC and Article 48 EC also for the benefit of the taxpayer who is claiming group relief.

The CJEU has now followed the AG’s opinion and the contravening legislation must be disapplied by the referring Upper Tribunal.

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