British firms in the same corporate group can transfer UK tax write-offs between themselves even if the companies are connected by an enterprise based in another EU member state, the European Court of Justice in Kirchberg has ruled.

The case started when Hutchison Whampoa Ltd--a property, telecoms and transport conglomerate based in Hong Kong--attempted to use losses from Hutchison 3G UK Ltd--which runs British mobile carrier Three--to offset taxes owed for other UK businesses in its portfolio.

Under British tax law, this is generally permitted. However HMRC, the UK’s tax service, opposed this particular case of “consortium group relief”.

HMRC said the losses could not be transferred because the “link company”--Hutchison 3G UK Investment Sàrl, based in Luxembourg--was located outside the UK and so the firm was not a British “resident”.

In February 2012, British tax court asked the EU’s top court “whether the UK legislation on the transfer of losses is compatible with the freedom of establishment”, according to ECJ documents.

Residence condition

On Tuesday, judges at the ECJ ruled that the British rules went against European law.

They said that: “the residence condition laid down for the link company introduces a difference in treatment between resident companies connected by a UK link company, which are entitled to the tax advantage at issue, and resident companies connected by a link company established in another member state of the EU, which are not entitled to it. That difference in treatment, which makes it less attractive in tax terms to set up a link company in another member state” is contrary to European business rights.

The Financial Times said that Hutchison Whampoa could claim £1.6 billion in past losses.

A spokesman for the British tax service told Delano on Wednesday that: “HMRC is carefully examining the [ECJ] judgment. We are reviewing what the impact of the ruling is on our current legislation and whether it is compliant with the EU treaty.”

Christian Salbaing, deputy chair of Hutchison Whampoa Europe, said in an emailed statement: “We are pleased with today’s judgment of the Court of Justice of the European Union. It confirms the basis of our consortium relief claims.”

The case was number C-80/12 (Felixstowe Dock and Railway Company Ltd and Others v The Commissioners for Her Majesty’s Revenue & Customs).

The matter now returns to the British tax court for final adjudication.