Clifford Chance

European Commission takes aim at UK CFC tax regime

1 November 2017

The European Commission has opened an in-depth State aid probe into the group financing exemption under the UK's Controlled Foreign Companies (CFC) rules. An adverse finding at the end of the investigation, even if after the date of Brexit, could lead to the removal of the exemption, resulting in liabilities to pay extra tax for companies that have benefitted from it since its introduction in 2013.

However, previous Court of Justice of the European Union case law suggests that applying CFC rules within the EEA is contrary to the freedom of establishment unless the arrangements are "wholly artificial". This creates something of a paradox: the Commission may be requiring CFC rules to have broader scope than EU law in fact permits.

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