principle of territoriality in this context and a number of questions therefore remained
unanswered.15
In the case of ICI, the ECJ considered the UK’s consortium relief (a form of group
relief) which was available solely to companies which controlled subsidiaries whose
seat was in the UK. 16 ICI claimed that the legislation represented a restriction on its
right to establish subsidiaries in other Member States. The ECJ agreed that Article 43
of the Treaty precluded legislation such as the UK’s which made this form of tax
relief subject to the requirement that the holding company’s business consisted wholly
or mainly in the holding of shares in subsidiaries that were established in the UK.
This case is argued to have spelled the “beginning of the end for the concept that the
Member States retained total sovereignty over their direct tax affairs” (Craig, 2003).
The question of cross-border losses also arose in AMID.17 AMID was a Belgian
limited company which had its seat in Belgium but also carried on business in
Luxembourg through a permanent establishment (i.e. a branch, office or agency as
opposed to a subsidiary which is a separate legal entity). Under the terms of a double
taxation treaty between Belgium and Luxembourg, AMID’s income from its
permanent establishment in Luxembourg was exempt from tax in Belgium. The
Belgian business incurred losses in some years before returning to profitability, while
the Luxembourg business made profits throughout the relevant periods.
Belgium refused to allow AMID to deduct losses incurred by its Belgian
establishment in the previous year from the profits made by it in the subsequent year,
on the ground that those losses should have been notionally set off against the profits
made by its Luxembourg establishment in the previous year. The point was that if the
permanent establishment had been established in Belgium, the losses could have been
set off against the income of the company. The ECJ ruled that by notionally setting
off domestic losses against profits exempted by the double taxation treaty, the Belgian
legislation established a differentiated tax treatment as between Belgian companies
having establishments only in Belgium and those having establishments in another
Member State. Such legislation constituted a hindrance to Belgians wishing to invest
outside Belgium and therefore contravened Article 43.
This case could be seen as the forerunner to the well-known Marks & Spencers case,
on which the ECJ gave its decision in December 2005.18 When the Marks &
Spencers case was initially considered by the UK Special Commissioners they viewed
it as different from AMID because Marks & Spencers concerned subsidiaries rather
than permanent establishments.
Marks & Spencers had established retail operations in other EU member states
including France and Belgium and these operations were carried on through locally-
established subsidiaries. When these ventures proved unsuccessful, the company
15 Futura Participations SA and Singer v Adminstrationdes contributions (Case C-250/95) [1997] ECR
I-2471.
16 Imperial Chemical Industries plc (ICI) v Kenneth Hall Colmer (Her Majesty's Inspector of Taxes)
(Case C-264/96) [1998] ECR I-4695.
17 Algemene Maatschappij voor Investering en Dienstverlening NV (AMID) v Belgian State (Case C-
141/99) [2000] ECR I-11619.
18 Marks & Spencer plc v HM Inspector of Taxes; Case C-446/03.