On 18 September 2008, the EC Commission announced that it has sent the UK a "reasoned opinion" requesting that it properly implements the ECJ's decision in Marks & Spencer that, if a member state operates a domestic group relief system, it must also permit a company to claim relief for losses of an EC subsidiary if that subsidiary has exhausted all possibility of using those losses (see Legal update, Group relief: ECJ decides Marks & Spencer European tax losses case and Practice note, ECJ direct tax cases: where are they now? Marks & Spencer v Halsey). According to the EC Commission, the legislation in the Finance Act 2006 which purports to implement the Marks & Spencer ruling with effect from 1 April 2006 is in breach of the principle of freedom of establishment because it imposes conditions on cross-border group relief which make it virtually impossible for taxpayers to benefit from the relief (for details of the implementing legislation, see Practice note, Groups of companies: UK tax residence).

This means that UK companies claiming cross-border loss relief may not be constrained by some of the conditions in the Finance Act 2006 which relate to timing and to whether there is any possibility of using the losses overseas.

Source: EC Commission: Corporate taxation: Commission requests the United Kingdom to properly implement an ECJ ruling on cross-border loss compensation (IP/08/1365).