UK Files A Challenge To European Court To Overturn State Aid Finding On Tax Anti-Abuse Rules

; posted on
June 26th, 2019

The U.K. is fighting an order by European Union antitrust chief Margrethe Vestager to claw back allegedly illegal tax breaks from multinationals, adding to the list of potential EU flashpoints ahead of Brexit. According to the tribunals website, Britain filed a challenge with the EU General Court.

Background

UK allegedly has provided a selective advantage through an unjustified exemption from British anti-tax avoidance rules. In this regard, European Commission ordering the nation to recoup unfair tax subsidies. UK, similar to Netherland and Luxembourg, frequently issued favorable tax ruling for taxpayer that trigger a state aid. The ruling is one of a series of cases involving the likes of Apple Inc., Amazon.com Inc. and governments over tax deals that allow them to attract big business.

Fighting EU State Aid Finding On Tax Anti-Abuse Rules

The EU court challenge marks the start of at least two years of legal quarreling in the same tribunals in Luxembourg that the U.K. was keen to sever ties with through Brexit. Any ruling by the lower court could be appealed a last time to the EU’s top court, which would add another two years of litigation.

Noting the European commission’s decision in april, the exemption provided by British government was partly justified. The exemption which is provided for U.K.’s group financing, 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 that it considered the derogation illegal when such financing income stemmed from U.K. activities.

European commission didn’t specify which firms unduly benefited from it, but at least 56 companies have come forward since the probe started in 2017. Even though, the exemption was modified at the end of last year and no longer raises concerns on state aid, as reported by Bloomberg, UK treasury have decided to lodge an annulment application against it. The reason of the lodgment is due to the questionable design of the controlled foreign company rules that may lead to the provision of incompatible state aid,

Source: Bloomberg

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