EU launches investigation into Britain for letting multinational corporations avoid tax

Government introduced new tax loophole for multinationals in 2013

The European Commission has opened an investigation into alleged special treatment given to big multinational companies by the British Government and its tax authorities.

The UK has allowed some multinationals to “opt out” of key parts of its tax avoidance crackdown that applies to other companies – a move the EU says could breach state-aid rules about special treatment.

The EU probe comes shortly after the Commission ruled that tech company Apple must pay Ireland €13bn (£11bn) in back taxes – against the wishes of the Irish government.

Ireland says that sweetheart deal for Apple keeps the US-headquartered computer giant‘s European operations in the country.

Margrethe Vestager, the European Commissioner in charge of competition policy, said: “All companies must pay their fair share of tax. Anti-tax avoidance rules play an important role to achieve this goal.

“But rules targeting tax avoidance cannot go against their purpose and treat some companies better than others.

“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 UK’s “controlled foreign company” rules were originally put in place to stop British companies setting up a subsidiary in a tax haven to avoid British taxes.

However, under a loophole introduced under David Cameron and George Osborne in 2013, certain income, such as interest payments, have become exempt from the rules. The Commission says this rule is used by multinational companies to quietly shift profits into tax havens and pay little or nothing in Britain.

Apple has been the target of previous EU rulings on tax avoidance (Getty) (Justin Sullivan/Getty Images)

The EU has launched similar probes into other EU countries since June 2013, when it decided to use state-aid rules to enforce a tax-avoidance crackdown. As well as Ireland, the Netherlands and Luxembourg have been the subject of similar investigations.

Speaking to reporters in Brussels, a European Commission spokesperson would not be drawn on whether the probe was related to Brexit – and suggestions by some Conservatives that the UK should become a tax haven after it leaves the bloc.

“Members of the single market have to comply with our competition rules, that applies to anyone who is a member of the single market,” he said.

“Let me say something very general, not specific to any member states, is that what is happening in our state-aid investigations … have a simple goal, that all companies whether big or small pay their fair share of tax.”

The loophole was introduced while David Cameron was Prime Minister in January 2013 (Reuters)

The spokesperson would not say whether he believed the investigation would be finished before Britain left the EU.

“This is far too early to discuss which might come at the end of the process that we have now opened,” he said.

In January of this year, Chancellor Philip Hammond told a German newspaper that if Britain were closed off from European markets it would inevitably have to turn itself into a tax haven to compete with the EU.

“I personally hope we will be able to remain in the mainstream of European economic and social thinking,” he said at the time.

“But if we are forced to be something different, then we will have to become something different.” The Chancellor has since said the policy is not his “plan”.