Marks & Spencer won a landmark lawsuit yesterday when the European Court of Justice over-ruled the Inland Revenue which has refused to let the retailer count losses at Continental subsidiaries it closed in 1991 against its taxable British profits.
This is expected to enable M&S to claim a tax refund of up to £50 million. But opinions varied sharply yesterday about the implications for other companies who may be able to bring similar cases - and for the Treasury.
The European court asserted its supremacy to British tax law, describing the Revenue's refusal to allow companies to offset tax losses from overseas subsidiaries against UK profits as "a restriction on freedom of establishment".
It said that such an offset may be justified only if a company cannot prove it has exhausted all possibilities to account for its losses abroad. It also added that the restrictive rules can be applied in matters of national public interest.
Some City lawyers suggested that the ruling could trigger similar claims for tax refunds totalling some £700 million from companies including Cadbury Schweppes, BT, Ford, PepsiCo and Asda's parent Wal-Mart.
However, Simon Littlejohns, tax partner at the accountants PKF in Birmingham, suggested that "the limited circumstances in which relief will apply mean in practice that the tax impact is relatively small".
He added: "If the ECJ had ruled that unrestricted loss relief must be given to groups trading across the EU, the cost to the exchequer could have been billions of pounds and forced the Chancellor to increase UK taxes - so perhaps we have all had a fortunate escape."
The CBI's deputy director general, John Cridland, pointed out that the ruling allows the UK's system to comply with the Rome Treaty, so there are no grounds for abolishing group tax relief, which would be very damaging to Britain ' s global competitiveness.
" However, we should remain wary of the potential undermining of our own tax system by the European Court of Justice and the effect this could have on the Government's ability to protect and enhance the UK as a place to do business," he added.
Laszlo Kovacs, EU Commissioner for taxation and customs, welcomed the ruling, saying: "The court took a position that is supported by the Commission regarding the application of the principle of freedom of establishment for cross-border loss relief.
"Member states and the Commission will have to work together so as to draw conclusions from this judgement with a view to ensuring clarity for businesses operating within the internal market and ensuring that treaty obligations are respected."