UK food and clothing retailer Marks and Spencer can claim back GBP30m (US$53m) in tax from the British government following a European Court of Justice ruling today (25 October).

Marks and Spencer claimed tax relief from the UK authorities following the closure of its Belgian, French and German subsidiaries. When the claim was refused Marks and Spencer brought proceedings against the government and the UK court asked the European Court of Justice to rule on whether the UK provisions were compatible with the EU rules on freedom of establishment.

The court ruled that the provisions do constitute a restriction on freedom of establishment. "In effect, the United Kingdom rules apply different treatment for tax purposes to losses incurred by a resident subsidiary and losses incurred by a non-resident subsidiary," the court said. "They therefore discourage undertakings from setting up subsidiaries in other member states."

"Such a restriction is permissible only where it pursues a legitimate objective compatible with the treaty and is justified by overriding reasons in the public interest," the court said. "It is further necessary, in such a situation, that the restriction be apt to ensure the attainment of the objective in question and that it does not go beyond what is necessary to attain that objective."

The justification given for the rule was that it was needed to avoid the double use of losses, and the risk of tax avoidance, with losses transferred to the member states with the highest rate of tax. The court felt these reasons were legitimate, but it felt that the UK rule went beyond what was necessary.

We're pleased that the decision has been made, but it's clearly not a very straightforward one and we're taking time to assess it before we comment any further," Marks and Spencer spokeswoman Clair Foster told just-food.

"The court has ruled that the UK tax regime isn't quite right, but overall, EU governments will be quite pleased with this result," Bill Dodwell, a tax partner at consultants Deloitte, told the BBC. "UK law went too far because it didn't allow M&S to claim tax relief in the UK, even when it couldn't claim it overseas because it had closed its operations."