The European Union's antitrust authority has opened an investigation into U.K. rules that may have helped multinational companies lower their tax bills, it said Thursday.
The probe is the latest of several the EU has opened to examine whether tax arrangements offered to multinationals across the 28-nation bloc breach the EU's state-aid rules.
Continue Reading Below
The probe concerns the U.K.'s Controlled Foreign Company rules, which aim to prevent U.K. firms from using a subsidiary that is based in a low-tax jurisdiction to avoid British tax payments.
U.K. rules changed in 2013 to include an exemption to rules aimed at preventing tax avoidance. The change exempted some interest payments received from loans granted by multinational companies active in the U.K. The move came as part of a shake-up of Britain's tax regime implemented under former Treasury chief, George Osborne, who introduced a variety of anti-tax avoidance measures while trimming the corporate tax rate.
The exemption meant a multinational company active in the U.K. could provide financing to a foreign company within its group through an offshore subsidiary and pay little or no tax on the profit from these transactions, the European Commission, the EU's executive agency, said Thursday.
U.K. Treasury figures show the measure in question reduced government receipts by a cumulative GBP2.1 billion ($2.8 billion) over the four fiscal years to the end of March.
"We do not believe these rules are incompatible with EU law but will cooperate with the European Commission's investigation," the U.K. Treasury said in a statement.
EU Competition Commissioner Margrethe Vestager said anti-tax-avoidance rules play an important role in ensuring all companies pay their fair share of taxes.
"But rules targeting tax avoidance cannot go against their purpose and treat some companies better than others," she said. "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."
The probe comes as the U.K. negotiates its exit from the EU, due in March 2019. The EU has said it expects the U.K. to abide by any EU state-aid or competition rulings it makes on policies instituted during the U.K.'s membership, even once it has left the bloc.
The European Commission has been investigating tax arrangements across the bloc, including in Ireland, Luxembourg, the Netherlands and France, as part of an effort to ensure large firms aren't given better treatment than their competitors.
The EU's antitrust watchdog recently ordered Luxembourg to recoup EUR250 million ($295 million) from Amazon.com Inc., accusing the country of handing the company a beneficial tax deal that helped it avoid paying taxes there. Luxembourg said Amazon had been taxed in accordance with tax rules at the time. Amazon said it would consider an appeal.
The regulator also referred Ireland to the bloc's highest court, the European Court of Justice, for failing to implement an order last year that Dublin retrieve roughly EUR13 billion from Apple Inc. in uncollected taxes, made possible through what the regulator said were illegal tax benefits. Ireland and Apple are appealing the decision.
The antitrust regulator has also taken aim against broader government programs aimed at attracting foreign investment.
In January 2016, the EU ordered Belgium to recoup about EUR700 million from some 35 companies, including brewer Anheuser-Busch InBev NV, after concluding that a Belgian tax-discount plan for multinationals was distorting competition within the EU's single market. Belgium has said it would appeal the decision.
The moves by the EU have sparked criticism by government officials, corporations and some tax experts who say the retroactive decisions create uncertainty for companies operating in Europe and could force firms to relocate out of the bloc.
Ireland, Luxembourg and Belgium have all amended tax practices following investigations by the antitrust regulator.
Jason Douglas and
contributed to this article.
Write to Laurence Norman at firstname.lastname@example.org
(END) Dow Jones Newswires
October 26, 2017 11:02 ET (15:02 GMT)