UK and International Tax news
Further EC Referral Of UK To ECJ Over Cross Border Group Relief
Friday 5th October 2012
The EC has referred the UK to the EU Court of Justice [ECJ] for its tax legislation on cross border loss relief as it considers that the UK has failed to properly implement the ECJ’s previous ruling in the Marks & Spencer case [ case C-446/03].
In the original 2005 ruling, the ECJ held that it was disproportionate to prohibit a UK parent company from deducting the losses of its non resident subsidiary, when the latter has exhausted all possibilities for relief in its State of establishment. Following this ruling, the UK should in principle grant relief for definitive losses of a subsidiary established in another Member State.
In October 2009, the EC decided to refer the UK to the ECJ over improper implementation of the ruling in its domestic legislation. It held that the provisions remained incompatible with the right of establishment provided for in Articles 49 and 54 of the Treaty on the Functioning of the EU.
In October 2010, the EC then formally requested the UK to change its provisions of the CTA 2010 which it said had not properly implemented the ruling of the ECJ in the Marks & Spencer case. The request took the form of an additional reasoned opinion (the second step of the infringement procedure). Whilst the legislation had been amended, the UK continued to impose conditions on cross-border group loss relief which in practice make it impossible or virtually impossible for the taxpayer to benefit from such relief in accordance with the judgment.
There has been no satisfactory reaction since the 2010 request and accordingly the EC has now decided to refer the matter to the ECJ.
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