C- 414/06 Lidl Belgium (Advocate General – 14 Feb 08): Cross Border Relief For Utilisable Losses

A Germany company sought to repatriate the losses of its Luxembourg branch in circumstances where the double tax convention exempted from tax in Germany branch profits and in turn therefore did not give credit for branch losses. Can the company do so despite the terms of the DTC and even where the branch losses could be carried forward and used in Luxembourg in the future?

The Advocate General has concluded that it can. She sees no material difference between branch losses and the losses of a foreign subsidiary such as those in Marks & Spencer. Additionally Marks & Spencer does not stand in the way of relief for temporary losses. The reason why the Court focused on final losses, the Advocate General believes, may be explained by the fact pattern in that case where the losses were terminal. A cashflow disadvantage will nevertheless always arise where provisions restrict the use of a loss cross border in that accounting period so that the loss can only be carried forward and used in the future in the local jurisdiction.

If followed by the Court, the case has important implications for cross border loss claims where taxpayers have ultimately used foreign losses and are claiming the cash flow disadvantages of being denied cross border loss offset.

Other Hearings

The judgment of the Court of Appeal concerning the assessment issue in ACT Class 2 was delivered yesterday in favour of HMRC. This concerned the method for assessing damage from the payment of ACT where the parent was in receipt of a partial treaty credit. The effect on class 2 claims has already been the subject of reports to those affected.

Following the receipt of favourable judgments from the ECJ and Counsel's opinion, we are in the process of re-commencing the ACT Class 4 case for circumstances where the non resident parent of UK subsidiaries suffered UK tax (under Sch F) on dividend receipts. Please contact us should you wish more information.

We are still awaiting a hearing date from the ECJ in the CFC and Dividend GLO. The case has now been with that Court for listing since December 2005.

Due to Court listing clashes hearing of the Thin Cap GLO case in the High Court will now be in the period November 2007 – January 2008.

Originally appeared in Dorsey's UK Tax Law Update

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