UK insists tax loophole for multinationals is 'compliant with EU law'

Britain has said it will co-operate with a European Union investigation into whether a special tax exemption for multinationals, intended to combat tax avoidance, is legal.

European Commissioner Margrethe Vestager said the inquiry would investigate whether the UK scheme allowed some multinationals to pay less tax than other companies in breach of EU rules.

Downing Street said the Government believed the scheme, which came into force in 2013, was compliant with EU law and that multinationals in the UK were required to pay "all taxes due".

"We don't settle for less. This includes paying tax on any profits they make in the UK," a Number 10 spokeswoman said.

"Our rules prevent these profits being artificially diverted overseas. We do not believe these rules are incompatible with EU law.

"We will co-operate with the European Commission's investigation."

Announcing the in-depth investigation, Ms Vestager warned "rules targeting tax avoidance cannot go against their purpose and treat some companies better than others".

The European Commission refused to be drawn on how long the investigation would last despite speculation it would not be completed by the time Britain has left the EU in March 2019.

Deputy chief spokesman Alexander Winterstein told reporters in Brussels: "As long as a member state is a member of the internal market it is subject to the rules of competition, including European state aid rules."

He said the investigation was part of an agreed strategy to ensure "all companies, whether they are big or small, pay their fair share of tax where their profits are earned".