The Court’s Position on Cross-Border Losses: A Quest for the Well-Being of EU Citizens?

On 6 September 2012, a new chapter was added to the cross-border loss relief litigation saga with the European Court of Justice's (the Court) ruling in Philips Electronics. This case concerned the compatibility of the British group relief regime with the freedom of establishment. Under this regime, a loss sustained by a permanent establishment in the United Kingdom (UK) which corresponds to any foreign tax is not eligible for group relief. As such a requirement does not exist for losses sustained by resident companies, the Court ruled that it infringed the freedom of establishment and could be justified by neither the objective of preventing the double use of losses or the objective of preserving a balanced allocation of the power to impose taxes between Member States, nor by a combination of two the grounds.

The next chapter in the cross-border loss relief saga is soon to be written as the Finish Supreme Administrative Court has requested guidance on the explanation of the meaning of the 'final loss' jurisprudence of Marks & Spencer in A Oy which is still pending.

In this contribution, the authors review the consequences of Philips Electronics and the possible outcome of A Oy. This will involve the question whether the need to prevent the double use of losses, introduced in Marks & Spencer but in that case 'taken together' with the need to preserve the balanced allocation of taxing powers between Member States and the risk of tax avoidance, can now qualify as a stand-alone justification. Furthermore, we will look into the application and scope of the 'Marks & Spencer exception' for final losses.

This will be done by taking a critical look at the position of and tasks of the Court within the EU legal order. Furthermore, the authors will look into future of cross-border loss relief and assess what would be desirable from the perspective of the aim of the European Union (EU) to achieve an internal market and the interests of the Member States.