Global Tax Alert (News from the EU Competency Group) | 30 October 2013

EU Advocate General opines on UK limits on consortium relief

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Executive summary

The case of Felixstowe Dock & Railway Company & Ors (C-80/12) refers to the Court of Justice of the European Union (CJEU), the question of whether the UK's restrictions on claiming consortium relief through a link company represented a breach of the EU freedom of establishment and freedom of capital.

On 24 October 2013, the EU Advocate General (AG) issued his opinion holding that Articles 43 EC and 48 EC (now Articles 49 TFEU and 54 TFEU) preclude a requirement that, for the purposes of consortium relief, the link company be either resident in the UK or carrying on a trade in the UK through a permanent establishment situated there. This was the requirement under UK law for the periods for which consortium relief claims were made in this case.

In coming to this conclusion, the AG makes the point that the link company, which was registered in Luxembourg, enjoys freedom of establishment, regardless of the fact that it was ultimately controlled by a company established outside the EU. This may have wider implications in other situations, such as the on-going cross-border group relief discussions.

The UK consortium relief rules were amended for accounting periods beginning on or after 12 July 2010. In his comments, the AG suggests that those revised rules do not infringe the freedom of establishment principle.

It will be necessary to see whether the CJEU follows the AG's opinion and to confirm how the UK courts will then dis-apply the restriction. There may be a window to review claims to consortium relief for periods beginning pre 12 July 2010 that could be made through a non-UK link company.


In the present case, the companies seeking to claim consortium relief were UK resident companies as was the surrendering company. The surrendering company was owned by a consortium, of which one member was the link company for consortium relief purposes with the claimant companies. That link company was resident in Luxembourg.

The consortium relief being claimed related to periods that were governed by ICTA 1988. That legislation pre-dated the changes in 2010 that were brought about by the Philips Electronics case. The legislation at the time required effectively that the link company should be either UK tax resident or be operating though a UK permanent establishment.

Following the Philips Electronics case, the UK consortium relief provisions were amended for accounting periods beginning on or after 12 July 2010, such that a link company could be established anywhere in the European Economic Area (EEA). However, these amended provisions were restricted by a requirement that, in a situation where a consortium relief claim was being made between a consortium company and a group company of a non-UK resident link company, the group and link companies have to be members of the same group without relying on a company established outside the EEA.

AG Opinion

The AG found that the Luxembourg link company was in a less favorable position than a UK resident company in a comparable situation would be, as regards its capacity to act as the link between two UK companies liable to UK corporation tax. There was direct discrimination on the basis of the nationality of the link company as the provisions made it more advantageous for the link company's parent to establish its subsidiary in the UK than anywhere else.

The requirement for UK residence or UK permanent establishment applicable to the link company in relation to a consortium claim for group relief therefore constituted an unjustified restriction of the freedom of establishment and was thus precluded by Articles 43 EC and 48 EC.

The AG made the point that the link company enjoyed freedom of establishment, regardless of the fact that it was ultimately controlled by a parent company that was established outside the EU.


Assuming the CJEU upholds the AG opinion then it seems that the consortium relief claims in this case would succeed. This is on the basis that the legislation at the time contained only an unjustified restriction, namely that the link company be UK resident or have a UK permanent establishment.

To the extent that claims to consortium relief for periods beginning pre 12 July 2010 can potentially be made through a non-UK link company, groups may wish to review their current position. While this aspect of the judgment may be of relatively limited application, the confirmation that the freedom of establishment of a company is unaffected by the residence of its parent, may have much wider application.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), London
  • Andrew Drysch
    +44 20 7951 7076
  • Gabrielle Pizzuto
    +44 20 7951 6483
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Dr. Klaus von Brocke
    +49 89 14331 12287

EYG no. CM3920