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CJEU dismisses infraction proceedings against UK cross-border group relief regime


In a judgment handed down on 3 February 2015 in Case C-172/13 European Commission v United Kingdom the Court of Justice of the European Union (“CJEU”) dismissed infraction proceedings commenced by the European Commission against the United Kingdom in respect of its cross-border group relief regime.

Following the judgment of the CJEU in Case C-446/03 Marks & Spencer the United Kingdom amended its legislation in the Finance Act 2006 to allow a resident parent company to claim cross-border group in respect of the losses of a non-resident subsidiary provided the non-resident subsidiary had exhausted all possibility of having losses taken into account in the accounting period in which the losses were incurred or in previous accounting periods and there was no possibility of the losses being taken into account in any future accounting period. This reflected the ‘no-possibilities test’ articulated by the CJEU in paragraphs 55 and 56 of Marks & Spencer. The assessment of whether losses could be taken into account was to be undertaken as at the time immediately after the end of the accounting period in which the losses arose.

The Commission argued that the application of the ‘no-possibilities’ test as at the end of the accounting period made it virtually impossible for the resident parent company to obtain group relief, since in practice it permitted relief in only two situations, namely where the legislation of the Member State of residence of the subsidiary concerned made no provision for losses to be carried forward and where the subsidiary was put into liquidation before the end of the accounting period where the loss was sustained.

The CJEU dismissed the infraction proceedings. It considered that it was settled law that there was no obligation to provide group relief where the Member State in which the subsidiary was resident precluded all possibility of losses being carried forward. Further, it considered that the Commission had not established the truth of its claim that it was necessary to liquidate a subsidiary before the end of the accounting period in order to claim group relief. In particular, group relief would be available where the subsidiary had ceased trading and disposed of all its income-producing assets. However, so long as the subsidiary continued to be in receipt of even minimal income, the no-possibilities test was not satisfied.

The judgment is here.

Sarah Ford was Junior Counsel for the United Kingdom, instructed by the Cabinet Office.