JHA | Why the EC regards the group financing exemptions as state aid

Why the EC regards the group financing exemptions as state aid

January 12, 2018

Author: and

Originally published in Tax Journal on 12 January 2018.


The European Commission has published its preliminary decision finding the non-trading financing profits exemptions in the UK’s controlled foreign companies (CFC) rules to amount to unlawful state aid. The published decision appears to differ somewhat from the earlier short press release of 26 October 2017. It is now clear that the Commission is challenging both the full and partial exemptions in TIOPA 2010 Part 9A Chapter 9. According to the Commission, it is inconsistent with the logic of the UK’s rules to provide exemptions where the profits are earned from overseas lending in comparison with non-trading finance income which generates UK interest deductions or involves third party lending. Taken to its logical conclusion, the Commission appears to be saying that all financing profits should be taxed in the home state, even where the profits are not generated by home state funds. In doing so, the Commission seems to challenge current case law on the freedom of establishment, which is not addressed at all in its decision.

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