Landmark Tax Ruling Could Cost EU Governments Millions

The European Court of Justice (ECJ) backed Marks and Spencer's right to deduct losses made by its subsidiaries in France, Germany and Belgium from its tax bill in Britain.

While saying that British law was basically in line with EU law, the ruling allows foreign subsidiaries to transfer losses back to their parent company if the losses cannot be used for tax purposes in the country where they were made.

Marks and Spencer reacted cautiously to the ruling, saying it welcomed the decision but stressing that it needed to study the details.

"We are pleased that the decision has been made and we need time to assess its ramifications before making further comment," a London-based spokesperson for Marks and Spencer told AFP.

Countries could be hit with massive bills

But experts said the ECJ ruling could cost tax authorities in Britain and elsewhere hundreds of millions of euros. "In a number of countries, it could be a loss of hundreds of millions euros," said Stefano Marchese of the European Federation of Accountants.

The European Commission hailed the judgment -- and warned that it could have implications not only for Britain but for other countries with similar tax legislation.

EU member states "that may be affected" are those that have submitted observations in the Marks and Spencer's case: Germany, Greece, France, Ireland, the Netherlands, Finland and Sweden, a commission spokeswoman said.

"This has European-wide repercussions," said Matt Coward of London-based Chartered Accountants Blick Rothenberg, estimating that the ruling could mean a 750-million-pound (1.1-billion-euro) hit for the British Treasury.

The repercussions could be felt throughout Europe

"How much might be at stake in the rest of the (European) community, is, well, I think you'd have to say think of a number," he told AFP, adding that it would be a "significant" figure. "It's something that all European governments will have to take into account."

In London the Treasury underlined the ECJ's findings that British law was in line with EU law. But it said: "We accept that in a very small number of very limited circumstances, the UK may have to allow relief for losses of the foreign subsidiaries of UK companies."

It added: "The government will bring forward detailed proposals in due course, and our intention is to consult with business on the detail of how the group relief should be amended to bring it fully in line with EU law."

EU tight-lipped over size of possible claims

The EU commission declined to speculate on the potential size of claims which could be unleashed by the ruling. "We cannot at this stage make any calculations on budgetary consequences for the (EU) member states concerned," said EU tax and customs union commissioner Laszlo Kovacs.

"Member states and the commission will have to work together so as to draw conclusions from this judgment with a view to ensuring clarity for businesses operating within the (EU's) internal market," he added.