EU tells UK to claw back multinational tax breaks
The EU ordered the UK to claw back illegal tax breaks designed to lure multinationals — in a timely reminder the EU still calls the shots on competition rules until Britain leaves the bloc.
The European Commission said the British gave certain multinationals a selective advantage by granting them an unjustified exemption from UK anti–tax avoidance rules. “This is illegal under EU state aid rules,” Margrethe Vestager, the EU’s competition chief, said. “The UK must now recover the undue tax benefits."
While the commission said the exemption was partly justified and didn’t specify which firms unduly benefited from it, at least 52 have come forward since the probe started in 2017.
They estimated their tax liabilities at about £1.19bn (€1.4bn). The final bills may now be much lower because the EU didn’t outlaw the entire programme. The ruling from the EU comes as Prime Minister Theresa May is expected to confront her most senior ministers with the potentially explosive option of delaying Brexit by months, as the UK and its parliament struggle to find a plan for leaving the EU.
The UK’s group financing exemption, introduced in 2013, allowed companies active in the country to pay little or no tax on financing income received from a foreign unit via an offshore subsidiary.
The EU regulator said it considered the derogation illegal when such financing income stemmed from UK activities. The exemption to controlled foreign companies rules was modified at the end of last year in a way that no longer raises concerns, the EU said.
“We are clear that all multinationals operating in the UK must pay their fair share of tax,” the U.K. Treasury said.
Our Controlled Foreign Company rules are part of a robust package of anti-avoidance measures that prevents UK profits from being artificially diverted overseas.
"We will carefully consider the commission’s decision,” it said. The EU watchdog has now been branching out and in addition to how a single company is taxed, it also has been looking at tax rules in several countries that affect a group of firms.
