Brussels, 03/02/2015 (Agence Europe) - On Tuesday 3 February, the Court of Justice of the EU rejected the action brought by the European Commission against the United Kingdom for non-compliance on the changes made in 2010 to the way the British system of cross-border group relief works (Case C-172/13).
The Court did not therefore uphold the Commission's opinion. In its appeal on non-compliance, the Commission considered that London had not brought its system of group relief into line in order to take account of the 2005 Court of Justice judgment (the Marks & Spencer judgment, C-446/03), which determined that not taking account of losses made by non-resident companies in a group is not in line with EU law.
The new British system was introduced in 2010 and allows cross-border group relief. However, this is possible under certain conditions - that the non-resident company has exhausted all possibility of having the losses taken into account in the accounting period in which the losses were incurred or in previous accounting periods, and that there is no possibility of the losses being taken into account in future accounting periods. In order to determine what losses can be taken into account in future accounting periods, London requires the non-resident company to refer to the situation as at the time immediately after the end of the accounting period in which the losses were sustained.
In the Commission's view, such a system is too restrictive because it only in practice allows the resident parent company to take such losses into account in two situations - when the member state of residence of the subsidiary concerned makes no provision for losses to be carried forward, and when the subsidiary is put into liquidation before the end of the accounting period in which losses were sustained.
The Court rejected these arguments. The first situation put forward by the Commission is not relevant because it is legitimate (it does not go against the freedom of establishment) for the member state in which the parent company is resident to refuse cross-border group relief if the member state where the subsidiary is based precludes all possibility of losses being carried forward. As regards the second situation, the Court was not convinced and noted that the Commission was not able to demonstrate that it is essential for the non-resident subsidiary to be put into liquidation. (JK)