Freedom of establishment and group losses

The taxpayers were UK resident members of a group company whose ultimate parent was based in the Netherlands. They claimed consortium relief for the years ending 31 December 2007 2008 and 2009 against losses by the UK permanent establishment of one of the Dutch group companies. HMRC refused the claims on the basis that the profits were available to be offset against non-UK profits – indeed some of the losses had been offset against Dutch profits.

The First-tier Tribunal allowed the taxpayers’ appealed that TA 1988 s 403D breached the EU principle of freedom of establishment in a manner that was not justifiable or proportionate. HMRC appealed.

The Upper Tribunal held that the UK’s rules on cross-border group relief - in force at the relevant time - were not compatible with the EU principle of freedom of establishment. However rather than disapply the UK rules in their entirety...