MANY British companies will miss out on expected tax rebates, after Europe’s highest court gave its judgment yesterday on a case brought by Marks & Spencer.

M&S had challenged British tax law at the European Court of Justice (ECJ) in an attempt to win a £30 million rebate on its tax bill by offsetting losses incurred at failed European subsidiaries.

The court in Luxembourg ruled that M&S could legitimately claim UK tax relief on losses at its European divisions, but only if it was unable to get tax relief in the country where the losses were incurred. The ruling in effect restricts the ability of UK companies to offset tax against losses incurred abroad.

The specific definition of the circumstances where a company could offset foreign losses meant that the Treasury looks set to avoid potentially billions of pounds of rebates to British companies who have loss-making subsidiaries in Europe.

While the ruling is likely to trigger similar actions, including a class-action lawsuit involving 75 British firms, the new actions are expected to cost the Treasury only hundreds of millions in tax rebates. A spokesman for the Treasury said: “We accept that in a very small number of very limited circumstances the UK may have to allow relief.”

Bill Dodwell, a tax partner at Deloitte, the accountancy firm, added that the 75 firms, including Lloyds TSB, Carphone Warehouse and Asda, will not be able to take advantage of the narrow ruling because they still have continuing operations in Europe and will have to claim tax relief on the losses where they were incurred.

The UK Government was not alone in challenging M&S in the case before the Luxembourg court. It was also supported by Germany, Greece, France, Ireland, the Netherlands, Finland and Sweden. But the partial win for M&S is still likely to result in governments across Europe rewriting tax codes to adjust to the ruling.

A move to Europe-wide negotiations on tax law appeared to be supported by the European Commission yesterday. A Commission spokeswoman said: “This is a hint to member states that they have to co-operate more on their tax systems so that the burden of relief for company losses is shared and does not fall on one country alone.”

The Commission intends to present a working paper on cross-border corporate losses next year in response to rising concern among EU Finance Ministers at the implications of many of the ECJ’s rulings.

The tax codes of many EU member states treat domestic entities differently from foreign ones, the main point called into question by the M&S case.

David Evans, director of international tax at Ernst & Young, the accountants, described the ECJ’s decision as a “score draw”.