Marks & Spencer decision

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With the decision in the Marks & Spencer case on December 13, 2005 , the ECJ stipulated the conditions under which a member state may deny a company the cross-border offsetting of losses .

Facts and subject of dispute

Under UK corporate tax law , corporations can set off the profits and losses of their group companies. However, this option is limited to group subsidiaries in Germany.

The British retail company Marks & Spencer began its expansion into the European continent in 1975 and opened branches u. a. in France , Belgium and Germany . From the mid-1990s, the subsidiaries in these countries began to accumulate loss carryforwards . Marks & Spencer ended the expansion strategy in 2001 by selling the subsidiaries or giving up the business.

Marks & Spencer asked the British tax authorities to offset the losses incurred by the three subsidiaries against the profits of the British parent company in order to achieve a considerable reduction in the tax burden. Since UK law does not allow cross-border loss offsetting, this was rejected. The action brought by Marks & Spencer against the negative decision with the Special Commissioners of Income Tax was also unsuccessful. Marks & Spencer finally appealed against this decision to the High Court of Justice (England & Wales) , which referred the case to the ECJ for a preliminary ruling .

The decision of the ECJ

By judgment of 13 December 2005 (Rs. C-446/03) the ECJ ruled that the freedom of establishment principle does not preclude a ban on cross-border loss offset. However, the member state must give the company this option if it is impossible for the subsidiary's losses to be used for other purposes.

The prohibition of cross-border loss offsetting represents a restriction on the freedom of establishment, as it is likely to discourage companies from setting up subsidiaries in other European countries. Under certain conditions, however, this restriction is justified by compelling reasons of the general good. The ECJ uses the justification of the coherence of the tax system, but without explicitly mentioning this justification.

The ECJ stated that "in order to preserve the division of the taxation authority between the member states, it may be necessary to apply only its tax law to the economic activity of companies established in one of these states, both in terms of profits and losses." In terms of tax law, profits and losses are "two sides of the same coin". If, on the other hand, the offsetting of losses were completely released, companies would practically have an option to withdraw profits from taxation in one country and to transfer them to another country in return.

Furthermore, there is a risk that losses will be counted twice, both in the country of the subsidiary and in that of the mother. The Member States must also be able to counteract this.

The solution chosen by Great Britain of a general ban on offsetting losses across the border is, however, disproportionate. In exceptional cases, the company must be given the option of offsetting. This exceptional case exists if the subsidiary has exhausted all possibilities to use its losses for tax purposes in its country of domicile and there is no possibility in the future to claim them in the country of domicile of the subsidiary.

Effects of the judgment

The judgment requires the member states, under certain conditions, to take into account losses incurred abroad when taxing domestic profits. It cannot yet be foreseen whether the dangers of this development, also seen by the ECJ, can be avoided.

For Germany, in some cases considerable tax reductions (up to € 50 billion) were feared. It is true that the provisions of German tax law to allow tax group not to offsetting domestic profits with foreign losses generally. However, there are no reliable figures on how many unused losses have accrued in foreign subsidiaries of German corporations. In addition, the requirements mentioned by the ECJ would have to be proven for an assertion in Germany. In particular, it is likely to be difficult to prove that the subsidiary has actually exhausted all possibilities of utilizing the losses in the country of residence of the subsidiary. The Federal Ministry of Finance therefore assumes that there will be only minor fiscal effects.

It is surprising that, contrary to the opinion of the Advocate General , the judgment does not contain any restriction on the effect. The member states had hoped that such a time limit would significantly reduce the fiscal risk. In the present case, however, this does not seem to have been necessary due to the narrow scope of the judgment.

literature

Essays

  • Frank Balmers / Michael JJ Brück / Martin Ribbrock: The ECJ judgment Marks & Spencer: Cross-border use of losses is progressing! , in: Betriebs-Berater 2006, 186–189.
  • Daniel Dürrschmidt / Martin Schiller: Offsetting losses from foreign subsidiaries , in: NZG 2006, 103-105.
  • Norbert Herzig / Thomas Wagner: ECJ ruling “Marks & Spencer” - limited compulsion to open national group taxation systems for cross-border issues , in: DStR 2006, 1–12.
  • Heike Jochum : Continuing the Marks & Spencer case: Does European Community law permit a "validity-preserving reduction" of national tax law? , in: IStR 2006, 621–623.
  • Heinz Kussmaul / Christoph Niehren: Cross-border loss offsetting in the light of recent ECJ case law , in: IStR 2008, 81–87.
  • Ralf Maiterth: The ECJ judgment "Marks & Spencer" and cross-border loss offsetting from an economic point of view , in: DStR 2006, 915–919.
  • Armin Marti / Anna-Maria Widrig-Giallouraki: Cross-border consideration of losses - ECJ judgment “Marks & Spencer” , in: Der Schweizer Treuhänder 2006, 283–288.
  • Arndt Raupach / Dirk Pohl: The Marks & Spencer case - group tax law put to the test by the ECJ - repercussions on group law? , in: NZG 2005, 489–492.
  • Gert Saß: Again: To take into account losses of foreign subsidiaries in the EU. Comments on the ECJ ruling of December 13, 2005 case C-446/03, Marks & Spencer , in: DER BETRIEB 2006, 123–127.
  • Marc Scheunemann: Practical requirements for cross-border loss consideration in the group in inbound and outbound cases according to the decision by Marks & Spencer , in: IStR 2006, 145–154.
  • Franz Philipp Sutter: General ban on cross-border loss deduction - violation of freedom of establishment , EuZW 2006, 85–88.
  • Rainer Wernsmann : Community law requirements for cross-border loss accounting in the group . in: FR - Finanz-Rundschau 2006, 153–163.

Books

  • Roth in Dauses (Ed.): Handbuch des EU-Wirtschaftsrechts , 27th supplement 2010, ISBN 978-3-406-44100-4 , chap. EI (freedom of establishment and freedom to provide services), Rn. 120-129.
  • Kessler / Obser in Kessler / Kröner / Köhler: Corporate Tax Law , 2nd edition 2008, ISBN 978-3-406-56107-8 , § 1, Rn. 136–149 (cross-border loss offsetting).
  • Jan Becker / Rüdiger Loitz / Volker Stein: Tax-optimal loss utilization , 1st edition 2009, GWV Fachverlage GmbH, Wiesbaden, ISBN 978-3-8349-0621-2 , pp. 140–205.

Web links