European Commission vs. UK, April 2019, European Commission, Case no C(2019) 2526 final

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Back in 2017 the European Commission opened an in-depth probe into a UK scheme that exempts certain transactions by multinational groups from the application of UK rules targeting tax avoidance.

The EU commission concluded its investigations in a decision issued 2 April 2019. According to the decision the UK “Group Financing Exemption” is in breach of EU State aid rules.

Under the Scheme foreign multinationals would benefit from tax exemption of profits related to payments of interest on intragroup loans.

 

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“In conclusion, the Commission finds that the United Kingdom has unlawfully implemented the contested measure to the benefit of certain UK resident companies in breach of Article 108(3) of the Treaty. The Commission also finds that the Group Financing Exemption constitutes State aid that is incompatible with the internal
market within the meaning of Article 107(1) of the Treaty, in as far as it applies to non-trading finance profits from qualifying loan relationships, which profits fall within Section 371EB (UK activities) of TIOPA. By virtue of Article 16 of Regulation (EU) 2015/1589 the United Kingdom is required to recover all aid granted to the
beneficiaries of the Group Financing Exemption.”

“The group financing exemption scheme, included in the Taxes Acts as Chapter 9 of Part 9A of Taxation (International and Other Provisions) Act 2010, constitutes aid within the meaning of Article 107(1) of the Treaty, in as far as it applies to non-trading finance profits from qualifying loan relationships, which profits fall within Section 371EB (UK activities) of Part 9A of TIOPA. It does not constitute aid when applied to non-trading finance profits from qualifying loan relationships that fall within Section 371EC (capital investments from the UK) of Part 9A of TIOPA and that do not fall within Section 371EB (UK activities) of Part 9A of TIOPA. To
the extent that the group financing exemption scheme constitutes aid, it forms an ‘aid scheme’ within the meaning of Article 1(d) of Regulation (EU) No. 2015/1589. The aid granted under the aid scheme is incompatible with the internal market and was unlawfully put into effect by the United Kingdom in breach of Article 108(3) of the Treaty.

“The United Kingdom shall recover all incompatible aid granted under the aid scheme from the beneficiaries of that aid.”

“Recovery of the aid in accordance with Article 2 shall be immediate and effective.”

“(1) Within two months following notification of this Decision, the United Kingdom shall submit the following information to the Commission:

(a) a list of the beneficiaries that have received aid under the aid scheme;
(b) a list of the tax payers that have applied the group financing exemption to non-trading finance profits from qualifying loan relationships falling within Section 371EC (capital investments from the UK) of Part 9A of TIOPA and not falling within Section 371EB (UK activities) of Part 9A of TIOPA;
(c) for each beneficiary, the CFC charge actually charged in determining the beneficiary’s liability under the corporate income tax return, for each tax year that he has applied the group financing exemption, as well as the relevant corporate income tax return forms;128
(d) for each beneficiary, the CFC charge that would have been charged if he had not applied the group financing exemption, including underlying calculations, for each tax year that the beneficiary has applied the group financing exemption;
(e) the total aid amount and its detailed calculation (principal aid amount and recovery interest) to be recovered from each beneficiary;
(f) documents demonstrating that the beneficiaries have been ordered to repay the aid.

(2) For each beneficiary, the United Kingdom shall supply the Commission with supporting evidence demonstrating how the extent to which non-trading finance profits from qualifying loan relationships fall within Section 371EB of Part 9A of TIOPA has been calculated.
(3) For each tax payer, referred to in paragraph (1)(b) of this Article, the United Kingdom shall supply the Commission with supporting evidence demonstrating that the non-trading finance profits from qualifying loan relationships fall within Section 371EC of Part 9A of TIOPA and do not fall within Section 371EB of Part 9A of TIOPA.
(4) The United Kingdom shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid in accordance with Article 2 has been completed. On request by the Commission, it shall immediately submit information on the national measures already taken and on those planned to be taken, in order to comply with this Decision, including detailed information on the amounts of aid and recovery interest already recovered from the beneficiaries.

 

The UK government together with a long list of 75 Multinational Groups benefitting from the Scheme have appealed the decision to the General Court of the European Union.

1United Kingdom of Great Britain and Northern Ireland 
2Pearson Loan Finance Unlimited (London, United Kingdom), Pearson Overseas Holdings Ltd (London), and Pearson International Finance Ltd (London)
3Spectris plc (Egham, United Kingdom) and Spectris Group Holdings Ltd (Egham) 
4Weston Investment Co. Ltd (London, United Kingdom), Precis (1814) Ltd (London), British American Tobacco Holdings Belgium NV (Brussels, Belgium), British American Tobacco International Holdings (UK) Ltd (London) and British American Tobacco (GLP) Ltd (London)
5International Personal Finance Investments Ltd (Leeds, United Kingdom)
6Vodafone Group plc (Newbury, United Kingdom), Vodafone Consolidated Holdings Ltd (Newbury), Vodafone Finance UK Ltd (Newbury) and Vodafone Jersey Dollar Holdings Ltd (St Helier, Jersey) 
7GlaxoSmithKline Finance plc (Brentford, United Kingdom) and Setfirst Ltd (Brentford)
8Eland Oil & Gas plc (Aberdeen, United Kingdom)
9Halma plc (Amersham, United Kingdom), Halma Overseas Funding Ltd (Amersham) and Halma International Ltd (Amersham)
10Diageo plc (London, United Kingdom), UDV (SJ) Ltd (London), Diageo US Investments (London), Diageo UK Turkey Ltd (London) and Diageo Investment Holdings Ltd (London) 
11BT Group plc (London, United Kingdom) and Communications Global Network Services Ltd (London)
12AstraZeneca plc (Cambridge, United Kingdom), AstraZeneca Treasury Ltd (Cambridge) and AstraZeneca Intermediate Holdings Ltd (Cambridge)
13Essentra plc (Milton Keynes, United Kingdom), ESNT Holdings (No.2) Ltd (Milton Keynes) and Essentra Finance Ltd (Milton Keynes)
14Synthomer plc (Harlow, United Kingdom)
15ITV plc (London, United Kingdom)
16Babcock International Group plc (London, United Kingdom), Babcock Aviation Services (Holdings) Ltd (London) and Babcock Mission Critical Services Leasing Ltd (London)
17Meggitt plc (Christchurch, United Kingdom) and Cavehurst Ltd (Christchurch)
18Bunzl plc (London, United Kingdom), Bunzl American Holdings (No.2) Ltd (London), Bunzl Overseas Holdings (No.2) Ltd (London)
19Merlin UK Finco 1 Ltd (Poole, United Kingdom), Merlin UK Finco 2 Ltd (Poole), Charcoal Newco 1 Ltd (Poole) and Charcoal Newco 1A Ltd (Poole)
20St Schrader Holding Company UK Ltd (Swindon, United Kingdom)
21Daily Mail and General Trust plc (London, United Kingdom), Ralph US Holdings (London) and Daily Mail and General Holdings Ltd (London)
22Rentokil Initial plc (Camberley, United Kingdom), Rentokil Initial 1927 plc (Camberley)
23Compass Overseas Holdings Ltd (Chertsey, United Kingdom), Compass Overseas Holdings No.2 Ltd (Chertsey), Hospitality Holdings Ltd (Chertsey)
24Micro Focus International plc (Newbury, United Kingdom), Micro Focus International Holdings Ltd (Dublin, Ireland) and Micro Focus Midco Ltd (Newbury) 
25Cobham plc (Wimborne, United Kingdom), and Lockman Investments Ltd (Wimborne)
26Hikma Pharmaceuticals plc (London, United Kingdom) and Hikma Pharmaceuticals International Ltd (London) 
27Hill & Smith Holdings plc (Solihull, United Kingdom) and Hill & Smith Overseas Ltd (Solihull)
28SSP Group plc (London, United Kingdom) and SSP Financing Ltd (London)
29Sthree plc (London, United Kingdom) and Sthree Overseas Holdings Ltd (London)
30Smiths Group plc (London, United Kingdom) and Siti 1 Ltd (London)
31Northgate plc (Darlington, United Kingdom), and Northgate Europe Ltd (Darlington)
32The Weir Group plc (Glasgow, United Kingdom), TWG Investments (No.3) Ltd (Glasgow) and TWG Investments (No.4) Ltd (Glasgow)
33Associated British Foods plc (London, United Kingdom) and 5 other applicants
34LSEGH (Luxembourg) Ltd (London, United Kingdom), and London Stock Exchange Group Holdings (Italy) Ltd (London,) 
35Sedgwick Overseas Ltd (London, United Kingdom) 
36Laird Ltd (London, United Kingdom)
37DS Smith plc (London, United Kingdom) and DS Smith International Ltd (London,)
38Chemring Group plc (Romsey, United Kingdom) and CHG Overseas Ltd (Romsey) 
39Hyperion Insurance Group Ltd (London, United Kingdom) and HIG Finance Ltd (London)
40Spirax-Sarco Engineering plc (Cheltenham, United Kingdom) and Spirax-Sarco Overseas Ltd (Cheltenham)
41The Vitec Group plc (Richmond, United Kingdom)
42John Wood Group plc (Aberdeen, United Kingdom), WGPSN (Holdings) Ltd (Aberdeen), Wood Group Investments Ltd (Aberdeen) and Amec Foster Wheeler Ltd (Knutsford, United Kingdom)
43Reckitt Benckiser Investments Ltd (Slough, United Kingdom) and 5 other applicants
44Inchcape plc (London, United Kingdom)
45BBA International Investments Sàrl (Luxembourg, Luxembourg)
46WPP Jubilee Ltd (London, United Kingdom) and 11 other applicants
47Stagecoach Group plc (Perth, United Kingdom)
48Keller Holdings Ltd (London, United Kingdom) 
49Rio Tinto European Holdings Ltd (London, United Kingdom), Rio Tinto International Holdings Ltd (London) and Rio Tinto Simfer UK Ltd (London)
50Imperial Brands plc (Bristol, United Kingdom), Imperial Tobacco Ltd (Bristol), Imperial Tobacco Overseas Holdings Ltd (Bristol), Imperial Tobacco Holdings Ltd (Bristol), Imperial Tobacco Overseas Holdings (2) Ltd (Bristol)
51Markit Group Ltd (London, United Kingdom)
52Genus Investments Ltd (Basingstoke, United Kingdom) 
53Elementis Holdings Ltd (London, United Kingdom)
54W.S. Atkins International Ltd (Epsom, United Kingdom)
55Yalwen Ltd (Birmingham, United Kingdom)
56Just Eat Holding Ltd (London, United Kingdom)
57Willis Europe BV (Amsterdam, Netherlands)
58Ultra Electronics Holdings plc (London, United Kingdom), DF Group Ltd (London) and Ultra Electronics Swiss Holdings Company Ltd (London)
59Informa plc (London, United Kingdom), Maypond Ltd (Dublin, Ireland), Tanahol Ltd (Dublin) and Colonygrove Ltd (London)
60BAE Systems plc (London, United Kingdom)
61Experian Finance 2012 Ltd (Nottingham, United Kingdom)
62William Grant & Sons Holdings Ltd (Dufftown, United Kingdom) and William Grant  & Sons Investments Ltd (Dufftown)
63JIB Overseas Holdings Ltd (London, United Kingdom)
64Sheldon Holdings Ltd (London, United Kingdom) and Kingfisher International Holdings Ltd (London)
65FA Sub 3 Ltd (Tortola, British Virgin Islands)
66Royal Mail Investments Ltd (London, United Kingdom)
67Smith & Nephew USD Ltd (Watford, United Kingdom) and Smith & Nephew USD One Ltd (Watford)
68Anglo American International Holdings Ltd (London, United Kingdom)
69The Sage Group plc (Newcastle Upon Tyne, United Kingdom), Sage Treasury Company Ltd (Newcastle Upon Tyne), Sage Irish Investments One Ltd (Newcastle Upon Tyne) and Sage Irish Investments Two Ltd (Newcastle Upon Tyne)
70Simfer Jersey Ltd (St Helier, Jersey)
71RDI Reit plc (London, United Kingdom) 
72William Hill plc (London, United Kingdom) and William Hill Organization Ltd (London)
73Ashtead Financing Ltd (London, United Kingdom)
74Rigid Plastic Containers Finance Ltd (Rushden, United Kingdom) and RPC Pisces Holdings Ltd (Rushden)
75Arris Global Ltd (London, United Kingdom)

 

 

EU Commission UK group finance exemption April 2019 State Aid

 

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