News: Press Releases:
EU court case could cost Brown billions

13 December 2005

EU court case could cost UK taxpayer billions and it might lead to a rise in taxes.

Thousands of UK companies that operate in the EU and incur losses should be ready to rush through claims. If they are successful, it could lead to a large loss in Gordon Brown's finances.

The European Court of Justice will decide tomorrow whether Britain is in breach of EU law in denying Marks & Spencer the right to offset losses incurred by subsidiary companies in another EU country against its UK tax bill.

"If the case is successful, thousands of UK companies that have a December 31st year end should act immediately to claim thousands in tax losses," said David Rothenberg senior tax advisor at London chartered accountants Blick Rothenberg. He added: "It could cost the Chancellor dearly at a time when he is already short of cash."

Up until now the Government has been reluctant to say how much is at stake. It could run into billions of pounds in claims for over paid tax.

The Advocate General has already recommended that European Law should allow M&S's claim for group loss relief for its European losses, which the UK Inland Revenue has so far refused to agree.

The Exchequer could lose even more money in a case brought by Cadbury Schweppes, which challenges the UK Government's right to attack the cross border tax arrangements of multi-national companies.

"If successful this challenge could also cost the UK Exchequer billions of pounds," said David Rothenberg. He added: "It is not only the UK exchequer that is at risk from these decisions. Governments throughout Europe are anticipating considerable cost."

Until now, multi-national corporations have been restricted by UK legislation in their ability to take advantages of lower tax rates (10% for example in Ireland). This legislation has been attacked by Cadbury Schweppes who allege that it restricts its fundamental right to organise its affairs freely within Europe. If this argument is successful it could blow a major hole in the Chancellor's budget.

"These cases are just the tip of the iceberg," said David Rothenberg. "There is an increasing trend for national tax legislation to be challenged in the European court and each case could prove costly to the UK Exchequer."

He added: "The tax figures on which all political parties have based their projections could be seriously undermined by the decisions of the European Court. How will each of the parties finance these potential major losses of Government revenue which are beginning to look ever more likely?

"He will be carefully considering the effect of this, and may have to raise taxes, or restrict the availability of loss reliefs in the corporate sector generally."

NOTE TO NEWS EDITORS: If you would like quotes or the opportunity to interview someone about these issues then. NB The decision from Brussels will come at 08:30 tomorrow morning Tuesday 13/12/2005.

For more information, or to set up an interview, please call David Barzilay +44 (0)20 7544 8980, Lizzie Jordan +44 (0)20 7544 8827 or Steven Bruck +44 (0)20 7544 8970

EDITOR'S NOTE:
Blick Rothenberg's client base includes a wide range of private sector companies in a variety of industries as well as professional firms and charities. This breadth of clientele means that they have practical experience of all accountancy issues ranging from UK tax and audits to acquisitions, disposals of businesses and international taxation. They also provide all-round taxation, accountancy and other financial services to their personal client portfolio.
Blick Rothenberg is authorised & regulated by the Financial Services Authority to carry on investment business.