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UK CFC state aid decision published in EU official journal

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The European Commission’s state aid decision on the finance company exemption within the UK’s CFC regime was published in the EU Official Journal on 20 August 2019. Taxpayer companies have also been bringing applications to annul the decision, in order to protect their positions fully, and now have until 13 November 2019 to do so.

The Commission announced in April that the exemptions were partially justified under state aid rules and required the UK to recover all illegal state aid within four months. It concluded that the finance company exemption constituted state aid when applied to non-trading finance profits from qualifying loan relationships falling within TIOPA 2010, s371EB (UK activities). It did not constitute state aid when applied to profits falling within TIOPA 2010, s371EC (capital investments from the UK).

The UK government filed its annulment application with the EU General Court on 12 June ( The four pleas in law for the UK’s application for annulment were:

  • the correct framework for comparability is the corporation tax system as a whole, not the CFC rules;
  • the exemptions contained in Chapter 9 of the Taxation (International and Other Provisions) Act 2010 are not derogations. The UK’s choice of legislative technique is capable of identifying risks of abuse or artificial diversion. The Commission erred in failing to acknowledge a distinction between qualifying loan relationships (QLRs) and non-QLRs and in failing to grant the UK a suitable margin of appreciation when assessing this issue;
  • the Commission mistakenly found that the UK should have relied on a ‘significant people functions’ (SPF) test, as opposed to the said Chapters 5 and 9 operating together; and
  • there is no effect on intra-EU trade and the Commission failed to demonstrate the advantage of the Chapter 9 exemptions as opposed to obligations imposed in other member states.

See details in the European Commission register of state aid cases (SA.44896)

Issue: 1454
Categories: News