General Court upholds Commission Decision in relation to taxation of UK multinationals

10/06/22

On Wednesday 8 June the General Court handed down judgment in relation to the UK Government’s application to annul Commission Decision (EU) 2019 1352 of 2 April 2019 on the State aid SA.44896 implemented by the United Kingdom concerning CFC Group Financing Exemption.

The Commission found that one specific aspect of the UK tax code, whereby multinational companies do not have to pay tax on the profits of controlled foreign companies, amounted to a State aid. The United Kingdom and ITV (supported by the London Stock Exchange) challenged that conclusion. A considerable number of other multinationals also challenged the decision and their claims were stayed in favour of ITV.

The General Court rejected the applications for annulment. It held that the relevant reference system – when determining whether there had been a grant of State aid – was the rules applicable to CFCs, rather than the UK tax code as a whole. It also held that the measure was selective and was not justified. Finally it concluded that the measure had an effect on trade even though more than half of the other EU Member States imposed no taxes at all on the profits of controlled foreign companies at the relevant time.

Recovery proceedings are already well advanced in the United Kingdom to recover hundreds of millions of pounds in taxes owing.

The Judgment is here.