EU Commission publishes decision finding UK group financing exemption to CFC tax rule is State aid

The European Commission has published the nonconfidential version of its decision concluding that the UK’s group financing exemption to its controlled foreign company (CFC) rules is, in part, illegal State aid

The Commission’s decision was first announced in a press released on April 2.

The European Commission concluded that the UK CFC legislation’s group financing exemption is partially illegal because it can unduly exempt certain multinational groups from the UK rules. This creates an unjustified preferential tax treatment that is illegal under Article 107 of the Treaty on the Functioning of the EU, the Commission said.

The rest of the UK’s CFC regime and group financing exemption is justified and does not constitute state aid insofar as it ensures the proper functioning and effectiveness of the relevant tax rules, the Commission concluded.