The Commission has, recently, sent a reasoned opinion to the UK Government requesting further amendments to the UK’s legislation so that the ECJ rulings on the tax treatment of controlled foreign corporations (CFCs) are better taken into account.
The UK has already introduced measures amending its treatment of controlled foreign corporations (CFCs) taking into account the ECJ rulings in the Cases C-196/04 Cadbury Schweppes and C-201/05 Test Claimants in the CFC and Dividend GLO, however, according to the Commission they are not enough to comply with the ECJ’s rulings.
According to the Commission the UK has not fulfilled yet its obligations under Articles 49 (freedom of establishment) and 63 TFEU (free movement of capital). The Commission believes that “the UK's legislative response to the above rulings does not eliminate the discriminatory restriction of the anti-abuse CFC regime.” The Commission pointed out that “Under EU law, profits of CFCs – which are subsidiaries of companies established in EU Member States or in EEA countries – should not be subject to additional taxation in the country of the parent company if the subsidiaries are engaged in genuine economic activities.” Then, it stressed that “the UK continues to tax in the UK profits of subsidiaries established in the EU or in Member States of the European Economic Area (EEA)."
The Commission is, therefore, requesting the UK to amend its tax regime. The UK has now two months to amend its national rules in order to comply with the reasoned opinion, failing this, the Commission may lodge case against the UK with the ECJ. The ECJ may fine the UK if it fails to bring national legislation into line with EU legislation.
