According to reports, the UK lodged an appeal with the General Court on the 12 June 2019 against the European Commission decision of 2 April 2019, which found that certain parts of the UK's Controlled Foreign Company ("CFC") regime breached EU State aid rules.
The UK's CFC rules were designed to prevent companies in the UK avoiding or deferring taxes by shifting profits to subsidiaries in low tax jurisdictions. The CFC rules operate by making certain profits of overseas subsidiaries to UK tax. Between 1 January 2013 and 31 December 2018, the CFC rules included a tax exemption called the Group Financing Exemption ("GFE") that provided a full or partial (75%) exemption for finance income (interest payments received from loans) between non-UK members of a corporate group.
In the April decision, the Commission found that the GFE regime gave certain multinationals a selective and unjustified advantage to UK parent companies with subsidiaries based in non-UK jurisdictions. The Commission ordered the UK to effect full recovery of the unlawful State aid awarded under the regime.
The Government has not yet published its annulment application to the General Court, but it has made available a summary of the technical arguments against the decision which were put forward in the annulment application, including:
The number of companies affected by the Commission's ruling is believed to be over 50, and their joint tax liabilities could be as much as £1.35bn according to analysis by Bloomberg Tax. Such companies that are potentially affected by the ruling may have their own grounds for bringing an annulment application, outside of those grounds raised by the UK Government. Since there is a risk that affected groups may be unable to rely on EU defences at the domestic enforcement stage in the UK unless those grounds have been directly raised at the EU level, affected businesses have begun to prepare separate applications to challenge the EC’s decision in order to fully protect their position. It has been reported that at least 14 companies have filed appeals with the EU General Court, including BT, GSK and Vodafone.
The UK Government has refused to accept the Commission's finding of unlawful State aid and sought to challenge the basis for the decision in the General Court. It remains to be seen whether the UK will be successful, but in the meantime the UK government remains subject to the recovery order causing uncertainty for those who benefited under the tax measure.