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Just before Christmas, Marks & Spencer won a £30m case at the European Court of Justice that gave it the right to deduct overseas losses from its UK tax bill. The decision offers good news for some UK businesses operating European subsidiaries, but its slightly fudged nature offers less comfort to most companies.

M&S had been arguing that the losses it made on the operation of its subsidiaries in France, Belgium and Germany should be available to set off against its UK tax bill. These companies had been making losses for some years and were all closed in the accounting period covered by the claim.

Under UK tax law, it is possible to claim group tax relief for losses made by UK companies under the same ownership. This provision, though, has not been extended to cover losses arising outside of the UK.

M&S' argument centred on the alleged unfairness of this domestic law, and many other companies with loss-making European subsidiaries had put forward a similar case.

The drawback of the court's decision for many of these other companies is that UK tax relief on European losses can only be claimed if those losses cannot be claimed in the European country concerned. M&S was successful because its European subsidiaries had all closed so there was no opportunity to carry back or forward the losses in those countries. UK law had in the court's view gone too far - it wouldn't allow tax relief in the UK and there was no way M&S could now claim it abroad.

So, M&S can expect a sizeable rebate from HM Revenue & Customs but for many still running European subsidiaries, there will not be a similar payout. If you have a business that is still operating subsidiaries you are almost always permitted to carry forward losses year on year until a profit arises.

In my view, this will lead to separate companies being used more frequently for each development around the European Union. So for instance, a separate company can be set up in France for one building project. If losses are incurred and the firm has to be closed, there is a greater chance, based on the M&S decision, of those losses being set against the business' UK profits.

This does, however, lead to a number of practical points. First, you would not be entering into a commercial arrangement with a view to making a loss unless this was a one-off sprat to catch a mackerel. That said, it is often possible partway through a development project to identify that it will be loss-making. If that is the case, it makes commercial sense not to include any subsequent development in that country in that company. To do so, of course, would jeopardise the tax rebate.

M&S can expect a sizeable tax rebate but for many companies still running European subsidiaries, there will not be a similar payout

Second, it is difficult to form companies in certain EU countries. A company formation will usually require a large amount of share capital and a series of other complications. In Germany an approach must be made to the court and in Belgium representation made to the relevant municipal authority. The concept of the off-the-shelf £100 company does not really exist outside the UK.

Third, the funding of any losses would bring with it a number of other burdensome tax consequences under the transfer pricing regulations - which in simple terms endeavour to ensure a company pays tax on a suitable level of profit in each country where it is represented.

It should not be overlooked that, with M&S, the converse also applies: an EU parent company that sets up a UK company that closes having made losses can claim tax relief, so long as there exist relief provisions in the parent company's tax jurisdiction.

It is clear that the decision about whether to develop in another country is more than ever a tax-driven as well as a commercial decision.

It is important to look at the structure in advance and reconsider it during any development. The impact of foreign taxes and advice from suitably qualified specialists is also critical.

The M&S decision, although one of common sense for business, does not go far enough for some businesses, although it can be relied on at present if your circumstances are similar to that of the retailer.

A consultation process is now under way over changes to UK domestic law for company tax and the European commission is looking into the position of cross-border loss relief and a review of the Europe-wide company tax base.