Europe's highest court has granted British retailer Marks & Spencer a £30 million rebate from its British tax bill in a case likely to trigger a wave of copycat suits seeking back-taxes.
The European Court of Justice said Britain was wrong to prohibit the company from deducting losses made in France, Belgium and Germany if the company could not claim the losses in those countries.
"It is contrary to freedom of establishment to preclude the possibility for the parent company to deduct from its taxable profits in that member state the losses incurred by its non-resident subsidiary," the court said.
The company, resident for tax purposes in Britain, had sought "group relief" under British tax laws.
But the claim was refused on the ground that "group relief" only applied to losses incurred in the United Kingdom. The High Court sent the company's appeal to the European Court of Justice.
Under current British tax legislation, a multinational company resident in Britain can only claim British tax relief on losses in Britain. If the losses occur in a company subsidiary elsewhere in the EU, they cannot be offset against UK profits.
The case is the latest in a series referred to Luxembourg by UK courts questioning the compatibility of UK tax law with EU rules.
Even as the M&S verdict was being delivered, a separate case brought by Cadbury Schweppes was beginning in the same court concerning UK tax penalties against multinationals trying to benefit from lower taxes in other EU countries.
PA