Comment on the tax case and implications

City comment

Edited by Neil Collins (Filed: 08/04/2005)

Eurocrats may wish Mr Poiares Maduro had never opened this Pandora's box
Losses made abroad do count

The case brought by Marks & Spencer to the European Court is the stuff of nightmares for the eurocrats. Whatever the Advocate General, Miguel Poiares Maduro, opined it was going to cause trouble and his recommendation that the court find for M&S has opened a box which many would have preferred to see stay closed.

M&S had every right to bring the case, arguing that it was entitled to offset the losses from its failed expedition to France against the profits from its business in Britain, a little matter of ?30m clawed back from the Treasury and a much-needed morale booster for the company. Had Mr Poiares Maduro sided with the UK government, it would have been a setback for those urging 'ever closer union' and it would have played badly with his friends in Luxembourg.

As it is, he is steering the European Court of Justice towards finding for M&S, and while this doesn't bind the court, it tends to agree with its A-G's opinions. This would suit the agenda of the integrationists just fine. As Mr Poiares puts it, fiscal sovereignty among EU members has its limits, and in his eyes, setting your own tax rules is a sovereign claim too far. The problem with this communautaire argument is that it opens the door to what europhiles might describe as unfair tax competition. If a company can aggregate its EU income for tax purposes, it's likely to choose to do so in a country where the rates are low, even if he appears to limit their right to go 'loss-shopping' in high tax countries.

The net result would be a massive transfer of wealth from national exchequers to corporate coffers. There's much to be said for such an outcome - it would do wonders for European company competitiveness, and force governments to tax consumers rather than producers - but it could destroy delicately balanced budget calculations. The Germans are already flapping that tens of billions of euros of their revenue is at stake, and even our own dear Gordon cannot be viewing the prospect with equanimity. Against such opposition, the court is in a real quandary. It will be fascinating to see how it resolves things without causing a fiscal euro-earthquake.