- Encouraging news for non-EU based groups seeking relief for EU losses
The Court of Appeal has given a decision in favour of the taxpayer in the case of HMRC v FCE Bank PLC, which involves a claim to group relief where the parent company was resident in the United States.
Michael Anderson, UK Head of Direct Tax Litigation at KPMG, said: “Although this decision will not affect many companies directly, it will be encouraging news for companies which are seeking to rely on a double taxation agreement between the UK and a non-EU country to support a group relief claim where losses have been made by an EU fellow-subsidiary of a non-EU parent.”
Details of the case
FCE Bank PLC (“FCE”) and Ford Motor Company Limited (“FMCL”) were UK-resident subsidiaries of Ford Motor Company (“FMC”) which was resident in the USA. Under the tax rules in force in 1994, FCE was not entitled to relief for losses incurred by FMCL because the two companies had no common parent resident in the UK. FCE claimed that this represented discrimination against the two UK companies because of their ownership by a US resident. Such discrimination is prohibited by the double taxation agreement between the UK and US. Both the First-tier Tribunal and the Upper Tribunal accepted this argument.
On appeal to the Court of Appeal, HMRC accepted that there was discrimination but argued that this was not because of FMC’s residence but because FMC was not subject to UK corporation tax. The Court agreed with the decisions of both Tribunals in rejecting this argument, holding that the question of FMC’s liability to UK tax was not material to the rules for surrendering losses between UK-resident companies. FCE was therefore entitled to relief for the losses surrendered by FMCL.
The group relief rules have been changed with effect from 1 April 2000 to allow claims and surrenders between UK-resident members of a group even where the group relationship is traced through a non-resident parent company. As a result, only claims for earlier periods will be directly affected by this decision.
Lord Justice Rimer’s judgment will, however, be helpful to companies in non-EU parented groups which are seeking relief in the UK for losses incurred by EU-resident members of their group. Relief for such losses can now be obtained in certain situations following a decision of the European Court of Justice in the case of Marks & Spencer Plc in 2005, but that decision does not apply where there is no common EU-resident parent company. Some companies have sought to overcome this by relying on the Marks & Spencer decision in conjunction with the non-discrimination article of a double taxation agreement, but HMRC have resisted this. This new decision should strengthen the case for such claims to be allowed.
For further information please contact:
Margot Cowhig, KPMG Corporate Communications
Tel: 0207 694 4246 Mobile: 07920 274856: firstname.lastname@example.org
KPMG Press Office: 0207 694 8773
Notes to editors
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.