EU to probe British tax scheme

Updated: 
HMRC offices in Whitehall, London

The European Commission is to investigate a scheme introduced by the British Government that can help multinationals drive down their tax bill.

Margrethe Vestager, the EU's Competition Commissioner, said the probe will focus on whether the set-up allows multinationals to sidestep EU state aid rules.

She said on Thursday: "All companies must pay their fair share of tax. Anti-tax avoidance rules play an important role to achieve this goal. But rules targeting tax avoidance cannot go against their purpose and treat some companies better than others.

"This is why 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."

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The rule, which was introduced by former chancellor George Osborne and came into force in 2013, exempts multinationals from anti-tax avoidance measures and allows them to shift a portion of their taxable income to an offshore corporation, or "controlled foreign company".

HMRC revealed on Wednesday that corporate heavyweights had avoided paying £5.8 billion in UK tax last year by moving profits abroad.

The Commission is concerned that the scheme may harm domestic firms by handing an advantage to global rivals based in the UK.

"The Commission's state aid investigation does not call into question the UK's right to introduce controlled foreign company rules or to determine the appropriate level of taxation. The role of EU state aid control is to ensure member states do not give some companies a better tax treatment than others," it said.

We open in-depth investigation into UK tax scheme for multinationals https://t.co/LCkl8P1A24#StateAidpic.twitter.com/BP5Da1VMNQ

-- European Commission (@EU_Commission) October 26, 2017

The crackdown comes after the EU Commission announced earlier this year that it was taking Ireland to the European Court of Justice for failing to recover 13 billion euros (£11.5 billion) in tax from US tech giant Apple.

It also handed Amazon a bill of around 250 million euros (£221 million) in back taxes after stating that the firm's sweetheart tax deal with Luxembourg broke state aid rules.