U.K. Asks EU Court to Overturn Vestager's Tax Clawback Order

(Bloomberg) -- The U.K. is fighting an order by European Union antitrust chief Margrethe Vestager to claw back allegedly illegal tax breaks from multinationals, adding to the list of potential EU flashpoints ahead of Brexit.

Britain filed a challenge with the EU General Court on June 12, according to a filing on the tribunal’s website on Thursday.

Amid the U.K.’s stuttering efforts to find a way out of the EU, Vestager signed off on her decision ordering the nation to recoup unfair tax subsidies -- after finding that multinationals had received a selective advantage through an unjustified exemption from British anti-tax avoidance rules.

“We are clear that all multinationals operating in the U.K. must pay their fair share of tax,” the Treasury said in an emailed statement. But “after carefully considering the commission’s decision, we have decided to lodge an annulment application against it. We do not believe the design of the controlled foreign company rules led to the provision of incompatible state aid.”

Vestager has made the fight a linchpin of her tenure as EU competition commissioner, irritating CEOs and politicians along the way. The ruling is one of a series of cases involving the likes of Apple Inc., Amazon.com Inc. and governments over tax deals that allow them to attract big business.

The EU court challenge marks the start of at least two years of legal quarreling in the same tribunals in Luxembourg that the U.K. was keen to sever ties with through Brexit -- currently scheduled for Oct. 31 . Any ruling by the lower court could could be appealed a last time to the EU’s top court, which would add another two years of litigation.

The commission’s April decision said the U.K. exemption was partly justified. It didn’t specify which firms unduly benefited from it, but at least 56 companies have come forward since the probe started in 2017.

The U.K.’s group financing exemption, introduced in 2013, allowed companies active in the country to pay little or no tax on financing income received from a foreign unit via an offshore subsidiary. The EU regulator said that it considered the derogation illegal when such financing income stemmed from U.K. activities.

The exemption was modified at the end of last year in a way that no longer raises concerns, the EU has said. The commission declined to comment on the U.K. court challenge.

To contact the reporter on this story: Stephanie Bodoni in Brussels at sbodoni@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman

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