Hof van Justitie doet sleuteluitspraak in Marks & Spencer-zaak inzake de belastingaftrek bij verliezen (en)

EUOBSERVER / BRUSSELS - The European Court of Justice (ECJ) on Tuesday boosted the European Commission's bid to harmonise member states' corporate taxation systems, in a landmark ruling that is set to save retail giant Marks & Spencer billions in UK tax.

The EU's top court ruled in favour of Marks & Spencer, a British retail firm, which had argued that, in calculating its UK tax bill, it should be compensated for losses in its shops in other EU member states France, Germany and Belgium.

UK law has so far only provided for firms to offset their losses for subsidiaries within the UK.

The ruling is delicate as the UK and other member state tax authorities could face multi-million sum claims from cross-border companies, with Marks & Spencer expected to file a claim of around 44 million euros.

Germany, France, the Netherlands, Greece, Sweden, and Ireland backed the UK in the court case, fearing that company claims could hit their tax revenues.

The ruling is also set to challenge member states' sovereignty over tax matters.

The court said in a statement "Although direct taxation is within the competence of the member states, the latter must exercise that competence with respect for Community law".

The court highlighted the discriminatory nature of the UK rules, which, according to the judges, "discourage undertakings from setting up subsidiaries in other Member States" and thereby undermines the freedom of establishment provisions in the EC treaty.

Brussels pleased

Observers have identified the Marks & Spencer case as a landmark ruling, as it forces member states to reassess their company tax systems from an EU-wide perspective.

European tax commissioner Laszlo Kovacs welcomed the ruling stating "It is clear that Member States and the Commission will have to work together so as to draw conclusions from this judgement with a view to ensuring clarity for businesses operating within the Internal Market and ensuring that Treaty obligations are respected".

His spokeswoman said earlier that the ruling "gives a hint to better co-operate" on company tax issues.

But the commission spokeswoman indicated she did not consider the judgement as "clear cut" as the court also places firm conditions on the possibility to offset losses by foreign subsidiaries.

Common corporate tax base

Brussels is currently involved in efforts to set up a law harmonising corporate tax bases -referring to rules on what share of businesses' profits are taxed.

Most member states, as well as European business organisations, support this project, claiming that one single EU tax base will reduce costs of cross-border business.

But the UK, Ireland, Estonia, Lithuania and Slovakia are fundamentally opposed to the harmonisation of tax bases, fearing that the next step for Brussels will be interference in the levels of their corporate taxes as well.

UNICE, the European employers federation, welcomed today's court ruling, noting that it "provides a better opportunity for cross-border group consolidation within the European Union. It thus constitutes a step in the right direction towards better functioning of the internal market."

But the organisation added that full cross-border relief of losses could only be achieved through a common EU company tax base.

"It is important that Member States work actively on such a system, in close cooperation with the European Commission and the business community", UNICE stated.