In LINPAC Group Holdings Ltd v HMRC [2020] TC7556, the First Tier Tribunal (FTT) found that EU group relief claims did not replace earlier domestic claims to relief. The UK claims remained valid.
UK resident companies in a 75% group can surrender losses to fellow group members under domestic claims.
- The group relief position was clarified by the European Court of Justice (ECJ) in the well-known Marks & Spencer (M&S) case.
- M&S had made claims to offset the losses of their Belgian, German and French subsidiaries against the profits of the UK business. At the time this was prohibited by UK law, which required that there was a UK Permanent Establishment of the overseas subsidiaries for the losses to be surrendered.
- The ECJ ruled this was contrary to EU law and the Supreme Court followed their decision, allowing the loss relief claims. As a result, the UK law was changed and the definition of a group was extended to include EEA resident companies where the 75% test is met.
- This meant that from 2006 EU group companies have been able to surrender their losses to profitable UK group companies as long as they have exhausted the options for using the losses in their state of residence. This was a condition set initially by the ECJ and then incorporated into the group relief rules.
LINPAC Group Holdings Ltd (Holdings), a UK resident company, was a member of an international group comprising other UK companies and EU subsidiaries.
- LINPAC Holdings claimed group relief for losses surrendered by its UK parent company, LINPAC Finance. It claimed for its 31 December 2006 and 2008 accounting periods and for £48.5m and £59.8m.
- The 2006 UK group relief claim was made in the tax return submitted in December 2007. A year later a revised group relief matrix was submitted, including losses surrendered to Holdings by seven EU group companies and showing Finance carrying losses forward.
- The 2008 UK claim was made on the tax return filed in December 2009. This was later amended to include claims for group relief surrendered by several EU group companies.
- HMRC enquired into the returns for both accounting periods.
- Following the final outcome of the M&S case in 2015, LINPAC withdrew the claims for both periods although several had been already been withdrawn in the intervening years. HMRC had, in 2010 and 2012, allowed two of the domestic claims to be reinstated.
- In 2016 HMRC said it was not possible to have two group relief claims at the same time and when the overseas loss claims were submitted the original UK claims were withdrawn.
- HMRC said LINPAC could make late claims for those years, subject to its consent. HMRC refused it as the late claims were not “for reasons outside of LINPAC’s control”.
- Closure notices were issued in 2017 with no group relief allowed. LINPAC appealed.
The FTT allowed the appeals:
- Following the M&S decision, group relief claims can co-exist. Earlier claims do not have to be withdrawn before later claims may validly be made. This applied to LINPAC’s situation, that is, where domestic claims were made first followed by cross-border claims. It was not as HMRC argued and confined the facts of the M&S case.
- The cross-border claims were advanced as preferred alternatives to the domestic claims, on the condition that they were legitimate, but did not seek to withdraw the domestic claims.
- Where there are multiple claims made against the same profits, there is no requirement to make an election for which claims take priority unless there is a deadlock. There was no such deadlock here as LINPAC had validly withdrawn the cross-border claims.
The judge agreed with HMRC’s argument that the group had implied simplified group relief arrangements in place, despite the conditions for such arrangements never having been met.
He concluded that this did not matter as he had already found that the domestic claims had not been withdrawn. At the relevant times, when the various cross-border claims were made, the domestic claims could not be withdrawn without HMRC consenting to a late claim and they had not done so.
Links to our guides:
Losses: trading and other losses
When can a company offset its losses? What restrictions are there?
Case Study 7: Creating a group
What are the steps for creating a group by way of a share for share exchange?
External link:
LINPAC Group Holdings Ltd v HMRC [2020] TC7556
Marks & Spencer v David Halsey (Case C‐446/03)
Commissioners for HM Revenue & Customs v Marks and Spencer plc (2013) UKSC 30
