Concept of ‘final losses’ when considering the ability to offset cross border losses within an EU group

Wed 17 Jul 2019

Two recent CJEU cases concerning the Swedish tax Authority’s application of ‘M&S cross border loss relief’ have discussed what is meant by ‘final losses’ in the context of claims for cross border loss relief.

The UK provisions for cross border intra-EU loss relief are found in CTA 2010 part 5 chapter 3 (CTA 2010 s111-128).  Please get in touch with a member of the Mazars corporate tax or international tax teams to discuss the tax issues around the potential use of losses within a group.

What was covered in the CJEU cases

In summary the recent CJEU cases cover the following points:

• Skatteverket v Holmen AB (case C-608/17)
  • The concept of final losses of a non-resident subsidiary does not apply to a sub-subsidiary unless all companies in the chain between the parent claimant and the loss making subsidiary sustaining losses that could be regarded as final are not established in the same jurisdiction as the loss making subsidiary.
  • For the purposes of the assessment of the finality of the losses of a non-resident subsidiary, within the meaning set out in the CJEU decision in M&S, the fact that the subsidiary’s member state of establishment did not allow the losses of one company to be transferred to another company in the year of liquidation was not decisive. However it can be decisive where the parent company demonstrates that it is impossible for it to deduct those losses by ensuring, in particular by means of a sale, that they are taken into account by a third party for future periods.
  • In certain circumstances, the extent to which the legislation of the state of establishment of the subsidiary sustaining the losses that could be regarded as final resulted in it not being possible to set off part of them against the profits of the loss-making subsidiary or against those profits of another company in the same group is irrelevant.
• Skatteverket v Memira Holding AB (case C-607/17) – the reasons for finality must be valid (a difference in tax treatment in different jurisdictions may not be enough).
  • For the purposes of the assessment of the finality of the losses of a non-resident subsidiary, within the meaning in M&S, the fact that the subsidiary’s member state of establishment did not allow the losses of one company to be transferred, in the event of a merger, to another company liable for corporation tax, whereas such a transfer was provided for by the member state in which the parent company was established in the event of a merger between resident companies, was not decisive.  However it could be decisive where the parent company demonstrated that it was impossible for it to deduct those losses by ensuring, in particular by means of a sale, that they were fiscally taken into account by a third party for future tax periods.
  • The restrictions on the transfer of losses by merger stemming from the legislation of the subsidiary’s state of establishment were not decisive so long as the parent company had not adduced evidence that it was impossible for those losses to be used by a third party, in particular after a sale for a price including the tax value of the losses. If such evidence was adduced and the other conditions referred to in M&S had been met, the fiscal authorities were required to find that the losses of a non-resident subsidiary were final and that it was therefore disproportionate to not allow the parent company to take them into account at its level for tax purposes (see [30], [31] of the judgment).