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21st May 2022

EU takes aim at UK tax perks

  • City of London faces uncertain future on single market access (Photo: Ralph .)

EU competition authorities have sunk their teeth into UK tax perks for multinationals amid a wider crackdown on aggressive tax avoidance.

The European Commission said on Thursday (26 October) it had opened an "in-depth investigation" into a British law that let big corporations shift profits to offshore subsidiaries.

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  • Vestager's probe comes after claw-backs in Belgium, Ireland, Luxembourg, and Netherlands (Photo: European Commission)

It said the opening of the probe did "not prejudge the outcome of the investigation".

But it indicated that if the UK scheme constituted illegal state aid, then Britain could go the way of Ireland or Luxembourg in terms of EU injunctions.

"We will carefully look at an exemption to the UK's anti-tax avoidance rules for certain transactions by multinationals, to make sure it does not breach EU state aid rules," the EU competition commissioner, Margrethe Vestager, said.

The Commission's wider crackdown has seen US tech giant Apple ordered to pay back €13 billion in tax perks to Ireland and online retailer Amazon pay €250 million to Luxembourg.

It has also clawed back money in Belgium and the Netherlands in actions involving corporate giants Fiat, McDonalds, and Starbucks.

The size of the UK ruling could be significant, with the British tax office, HM Revenue & Customs saying multinationals avoided paying €5.8 billion in taxes last year by booking profits overseas.

Vestager's investigation comes amid a background of slow progress in Brexit talks.

But the Commission indicated that the two processes were unrelated. It said the UK tax reforms in question and its initial investigations dated back to 2012 - four years before the Brexit referendum.

It added: "As long as the UK is an EU member state, it has all the rights and obligations of membership."

"EU competition law, including EU state aid rules, continue to apply in full to the United Kingdom and in the United Kingdom until it is no longer a member," it said.

The British treasury quickly rebuffed Vestager's initiative on Thursday.

"We do not believe these rules are incompatible with EU law but will cooperate with the European Commission's investigation," a treasury spokesperson said.

"We are clear that all multinationals must pay tax ‎on any profits they make in the UK, and our rules prevent these profits from being artificially diverted overseas," they added.

British negotiators are hoping to start talks in December on a transitional deal for after the UK leaves the bloc in March 2019.

They are also hoping to start talks on future trade relations.

With the future of the City of London at stake, British chancellor Philip Hammond has previously hinted the UK could become an offshore tax haven if the UK's financial centre was locked out of the single market.

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