A lot has happened since April when the European Commission published its full decision on the UK’s CFC rules explaining why it considers that the CFC rules for exempting non-trading finance profits constituted State aid to the extent that the relevant significant people function (SPF) for those profits was located in the UK.
What has the UK Government done? In June it announced that it would appeal. From the summary of its appeal we can see that the Government has put forward a number of arguments. These include challenging the Commission’s interpretation of the finance company exemption as a derogation from the general rule for identifying artificially diverted non-trading finance profits. They also argue that, if the Government are wrong and the provisions are selective, then the administrative grounds that apply to justify the exemption insofar as they relate to the origin of capital apply equally to the location of SPFs.
And what about affected multinationals? A batch of appeals has already gone in from some affected companies. There is debate over when the clock starts ticking for the appeal deadline with these companies taking the cautious approach. We expect another batch of appeals to be submitted in late October following publication of the Commission’s decision in the Official Journal in August.
In the meantime, companies who have appealed are considering the implications of staying their appeal behind a lead case. That, of course, raises difficult questions since we don’t yet know which arguments are being put forward in the lead case and what their full factual position is.
Notwithstanding the appeals process, the UK is still under a duty to recover the alleged State aid from the relevant companies. HMRC are therefore going ahead with interim recovery. We understand that a standardised questionnaire should have been sent to all companies who took advantage of the relevant CFC provisions. This is in part to assist HMRC in calculating the amount of the State aid in each case and also to help answer some questions raised by the Commission. Groups haven’t (so far) been asked to provide an SPF analysis to HMRC although many will have performed one in order to assess their potential exposure.