EU Orders UK to Recover Illegal Tax Aid From Multinationals

France's Foreign Minister Jean Yves Le Drian and Germany's Foreign Minister Heiko Maas speak to reporters

France's Foreign Minister Jean Yves Le Drian and Germany's Foreign Minister Heiko Maas speak to reporters

The EU's powerful anti-trust authority on Tuesday said a tax break from Britain for unnamed multinationals was illegal under state aid rules, firing a shot at London amid Brexit chaos.

The EU investigation focussed on Britain's Controlled Foreign Company (CFC) rules, which are aimed at attracting companies to set up headquarters in Britain and discourage United Kingdom companies moving offshore.

"Anti-tax avoidance rules are important to ensure that all companies pay their fair share of tax".

The European Commission gave no indication of the amount of money to be recovered nor the companies involved, but said the tax break "unduly exempted certain multinational groups" from United Kingdom rules aimed at combatting tax avoidance.

However, since 2013 the system included an exemption for certain income of multinational groups active in the United Kingdom, the so-called "group financing exception". It particular, between 2013 and 2018, the scheme allowed for an exemption for interest payments on loans received by an offshore subsidiary from another group company based outside the UK. However, if they were derived from United Kingdom activities, the exemption would not be justified. Such an exemption is justified because it avoids "complex and disproportionately burdensome" procedures, the Commission argued.

The Commission said this was only justified if the finance profits did not come from British activities. The EU would thus be deprived of a fifth of its income from companies.

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The Commission decision against the United Kingdom tax scheme comes amid growing uncertainty about the country's departure from the EU.

The Commission found that the scheme was "partly justified" and did not constitute state aid as it ensured the "proper functioning and effectiveness of the relevant tax rules".

The Commission is responsible for competition across all 28 member states, and its rulings continue to apply to the United Kingdom until it has formally left the EU. "The UK must now recover the undue tax benefits", European Competition Commissioner Margrethe Vestager said in a statement.

Vestager has already ordered Apple, Starbucks, Fiat Chrysler and several other multinationals to pay back taxes totalling billions of euros to various European Union countries.

Two potential cases of tax rulings are still under investigation in The Netherlands (in favour of IKEA and Nike) and Luxembourg (in favour of Huthamaki).

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