Most European countries would be forced to overhaul their tax laws if Marks and Spencer, the retailer, wins a landmark court case that begins on Tuesday, according to new analysis.
The European Court of Justice in Luxembourg is set to hear M&S's claim that the UK government has infringed European Union law by refusing to allow tax losses from its overseas subsidiaries to be offset against its UK profits.
The case, which M&S is widely expected to win, has big implications for all but three of Europe's governments, according to a paper on the takeover of losses by the European Federation of Accountants (FEE) published on Monday.
“The ECJ case is not just a problem for the UK revenue but for the tax authorities of the majority of European countries,” Stefano Marchese, vice-president of the FEE, told the FT.
Tax authorities across Europe could face claims for billions of euros from companies claiming tax relief on past losses by foreign subsidiaries.
He predicted that governments would “rush” to change their tax rules to limit further claims. In the short term, they would be likely to take the drastic step of blocking companies' ability to offset losses against profits from domestic subsidiaries a move that would be highly unpopular with businesses.
A better solution would be to move to a system of international tax consolidation at EU level,he said.
This would allow companies to choose to opt into a system that would both tax profits of foreign subsidiaries and deduct losses of foreign subsidiaries.
This system has been adopted by Austria, Denmark and Italy the only three countries in Europe that are not expected to be affected by a M&S victory in the ECJ.
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