EU Commission investigating UK controlled foreign corporation law for State aid violation

The European Commission has opened an in-depth State aid investigation into the UK’s controlled foreign company (CFC) tax laws applicable to multinationals, specifically, the CFC rules’ group financing exception.

The group financing exception to the CFC rules,  added in 2013, is applicable to multinationals active in the UK. These rules exempt from the CFC provisions interest payments and other financing income received by an offshore subsidiary from another foreign group company.

Margrethe Vestager, the EU competition commissioner, is concerned that the UK scheme violates EU law because it exempts some multinational groups from the application of UK rules targeting tax avoidance. The Commission said it is not questioning the UK’s right to introduce the rules; rather, it is concerned because it seems that a member State is giving some companies a better tax treatment than others.

“All companies must pay their fair share of tax. Anti-tax avoidance rules play an important role to achieve this goal. But rules targeting tax avoidance cannot go against their purpose and treat some companies better than others,” Vestager said.

The Commission said EU Courts provide that an exemption from an anti-avoidance provision can amount to a selective advantage under EU law.

The Commission invites interested parties to submit comments.



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