The final European Commission state aid decision has now been published following the investigation into the UK's Controlled Foreign Companies (CFC) regime. It is now possible to fill in some of the gaps and explain the consequences of the decision. Given the estimates involved, some £1bn of tax to repay, you might think this was a nice problem for the government. However, the complexity and time frame within which the UK government is expected to collect that tax will be a headache for both government and businesses alike.

What happens next?

Within two months of receiving the final decision, the UK government must provide to the Commission a list of beneficiaries; a calculation of the aid; and evidence that the businesses have been ordered to pay. The clock started ticking on 2 April 2019, therefore affected groups can expect a flurry of activity over the next few weeks. Holding letters have been issued by HMRC to the taxpayers thought to be affected, effectively putting the groups on notice that this is something that they should start thinking about. The Commission expects HMRC to be able to calculate the unpaid tax but this is very difficult given the complexity of the circumstances. In order for there to be a degree of accuracy there will need to be some sort of collaboration between HMRC and the taxpayer to understand whether there are UK Significant People Functions (SPFs) and their value.

There is also the question of tax attributes and whether they will be available for taxpayers to set against the new charge. Logically you would expect them to be available, but we need to wait and see how the UK government approaches the recovery. In any event, this type of exercise of evidencing and agreeing a position with HMRC would ordinarily take several months, if not years. However, the state aid regulations require the UK government to have collected the unpaid tax by the beginning of August.

Appealing the decision

The UK government can appeal the decision to the European General Court within two months of receiving the final decision. It remains to be seen what position the UK government will take in this regard, and it may not become obvious until much nearer the deadline. Groups should not count on this, and plan accordingly.

Taxpayers can also consider appealing the decision to the European General Court within two months from publication in the Official Journal of the EU. The final decision sets out the Commission's view on the comments it has received from interested parties, the likely starting point for any challenge.

Separately, there will be grounds for taxpayers to challenge the UK government over recovery of tax. More than likely there will be different ways of undertaking the calculation and, given the difficulty and subjectivity of assessing the role of SPFs and key economic risk taking functions, taxpayers may come out at a different answer to HMRC.

Decision finding that the measures do not constitute aid (after formal investigation procedure): Negative decision with recovery