The European Union's top court is expected to make a landmark ruling on company tax next Tuesday that could take billions of euros from national coffers and prompt member countries to retaliate.
The European Court of Justice will rule whether British retailer Marks & Spencer can offset losses from subsidiaries in other EU member states against its profits at home.
An advisor to the court said in April firms should be allowed to claim tax relief on losses outside their home state, and the court backs its advisors in most cases.
"A group relief scheme which does not allow a parent company to deduct the losses of its subsidiaries established abroad under any circumstances is incompatible with community law," the advisor said.
But the advisor said firms cannot claim tax relief on losses at home and in the EU member states where they are incurred, which would help reduce the level of possible payouts.
Several countries such as France and Germany have already bust euro zone membership rules on budget deficits and an unplanned return of tax would be an added financial headache. Marks & Spencer went to the EU's highest court after Britain said it could not offset losses from other states.
The company said this was discriminatory and went against its freedom to set up shop across the 25-nation bloc.
A ruling for Marks & Spencer is likely to spur retaliatory measures from member states and strengthen the European Commision's hand in making make new tax proposals.
The Brussels executive is studying if it should propose a common tax base for companies in the EU, which would also resolve the issue raised by the Marks & Spencer case.
Last week EU Tax Commissioner Laszlo Kovacs urged EU member states to back an EU approach to corporate tax to avoid national tax policies being determined by the European court. Tax is largely a member state domain in the EU.
A study by Morgan Stanley investment bank showed that Greece, Finland, France, Ireland, the Netherlands and Sweden would also be hit if Marks & Spencer wins its case.