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Full European Commission state aid decision on UK CFC rules

Full European Commission state aid decision on UK CFC

European Commission concludes on whether UK CFC finance company exemption constitutes state aid.


Partner, Head of International Tax – Corporates

KPMG in the UK


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On 25 April 2019, the European Commission (EC) published its full decision as to whether the UK controlled foreign company (CFC) finance company regime under Part 9A TIOPA 2010 constituted state aid for the period from 1 January 2013 to 31 December 2018. In line with the press release on 2 April, the EC’s conclusion is that the exemption is acceptable in cases where there are UK connected capital contributions (as a simplification measure) but not where there are UK activities (i.e. UK significant people functions in respect of the loan). Further, the EC does not consider there to be a legitimate expectations defence in respect of recovery of the state aid by the UK Government, and has also put forward arguments as to why Cadbury Schweppes does not provide a defence against their challenge.

We are currently considering the sustainability of this position from an EU law perspective, however the publication of the decision also starts a four-month countdown, during which the UK Government must recover the aid from affected groups. HMRC have already reached out to many groups they believe to be impacted.

It is now critical that groups start assessing the impact that the Commission’s decision may have on any intra-group offshore financing arrangements that were in place between 2013 and 2018, in order to ascertain their potential exposures and set out their position for settlement with HMRC (whether or not the decision itself is appealed).

Join us on Tuesday 21 May 2019 at 12:00pm (BST) for a webinar on this topic hosted by Melissa Geiger, KPMG UK's Head of International & Complex UK Tax and Tax Policy. Click here to register now.

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