BRUSSELS (Reuters) – The European Commission said on Tuesday that part of a British scheme that exempted certain multinationals from rules designed to target tax avoidance amounted to illegal state aid and that Britain needed to recover this money.
The Commission, which oversees competition policy in the 28-nation European Union, looked into Britain’s Controlled Foreign Company (CFC) rules to prevent UK firms from using subsidiaries based in low tax jurisdictions to avoid UK tax.
The rules allow UK tax authorities to allocate all profits artificially diverted to an offshore subsidiary back to the UK parent company.
However, the rules allowed between 2013 and 2018 for an exemption for interest payments on loans received by an offshore subsidiary from another foreign group company.
The Commission said this could be justified if the finance profits did not result from British activities. However, if they were derived from UK activities, the exemption would not be justified and illegal state aid that needed to be recovered.
The Commission said the UK tax authorities should reassess the tax liabilities. It did not give an estimate for how much tax Britain would need to recover nor name any multinationals that had benefited.
It added that EU state aid rules continued to apply to Britain until it was no longer an EU member.
(Reporting by Philip Blenkinsop)