Commission Decision (EU) 2019/1352 of 2 April 2019 on the State aid SA.44896 implemented by the United Kingdom concerning CFC Group Financing Exemption (notified under document C(2019) 2526) (Text with EEA relevance.)

1 The Member State of a taxpayer shall treat an entity (…) as a controlled foreign company where the following conditions are met: (…)

2 Where an entity (…) is treated as a controlled foreign company under paragraph 1, the Member State of the taxpayer shall include in the tax base: (a) the non-distributed income of the entity or the income of the permanent establishment which is derived from the following categories: (i) interest or any other income generated by financial assets; (…) This point shall not apply where the controlled foreign company carries on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances. (…) or: (b) the non-distributed income of the entity or permanent establishment arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage. For the purposes of this point, an arrangement or a series thereof shall be regarded as non-genuine to the extent that the entity or permanent establishment would not own the assets or would not have undertaken the risks which generate all, or part of, its income if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company's income.

3 Where, under the rules of a Member State, the tax base of a taxpayer is calculated according to point (a) of paragraph 2, the Member State may opt not to treat an entity or permanent establishment as a controlled foreign company under paragraph 1 if one third or less of the income accruing to the entity or permanent establishment falls within the categories under point (a) of paragraph 2. Where, under the rules of a Member State, the tax base of a taxpayer is calculated according to point (a) of paragraph 2, the Member State may opt not to treat financial undertakings as controlled foreign companies if one third or less of the entity's income from the categories under point (a) of paragraph 2 comes from transactions with the taxpayer or its associated enterprises. (…)’

The group financing exemption scheme, included in the Taxes Acts as Chapter 9 of Part 9A of Taxation (International and Other Provisions) Act 2010, constitutes aid within the meaning of Article 107(1) of the Treaty, in as far as it applies to non-trading finance profits from qualifying loan relationships, which profits fall within Section 371EB (UK activities) of Part 9A of TIOPA. It does not constitute aid when applied to non-trading finance profits from qualifying loan relationships that fall within Section 371EC (capital investments from the UK) of Part 9A of TIOPA and that do not fall within Section 371EB (UK activities) of Part 9A of TIOPA. To the extent that the group financing exemption scheme constitutes aid, it forms an ‘aid scheme’ within the meaning of Article 1(d) of Regulation (EU) 2015/1589. The aid granted under the aid scheme is incompatible with the internal market and was unlawfully put into effect by the United Kingdom in breach of Article 108(3) of the Treaty.

1 The United Kingdom shall recover all incompatible aid granted under the aid scheme from the beneficiaries of that aid.

2 The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiary in question until their actual recovery. For the purposes of this Article, aid is deemed to be put at a beneficiary's disposal, with respect to each year, on the day that the tax foregone for that tax year as a result of the aid scheme would have fallen due in the absence of the aid scheme.

3 The interest on the sums to be recovered shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004.

4 The United Kingdom shall cancel all outstanding payments of aid granted under the aid scheme, and shall cease granting the benefit of the aid scheme with effect from the date of notification of this Decision.

5 Article 1 shall not apply to aid granted on the basis of the contested measure if, at the time the aid was granted, it fulfilled the conditions laid down in the Commission Regulation (EU) No 1407/2013 .

1 Recovery of the aid in accordance with Article 2 shall be immediate and effective.

2 The United Kingdom shall ensure that this Decision is fully implemented within four months following the date of notification of this Decision.

1 Within two months following notification of this Decision, the United Kingdom shall submit the following information to the Commission: (a) a list of the beneficiaries that have received aid under the aid scheme; (b) a list of the tax payers that have applied the group financing exemption to non-trading finance profits from qualifying loan relationships falling within Section 371EC (capital investments from the UK) of Part 9A of TIOPA and not falling within Section 371EB (UK activities) of Part 9A of TIOPA; (c) for each beneficiary, the CFC charge actually charged in determining the beneficiary's liability under the corporate income tax return, for each tax year that he has applied the group financing exemption, as well as the relevant corporate income tax return forms ; (d) for each beneficiary, the CFC charge that would have been charged if he had not applied the group financing exemption, including underlying calculations, for each tax year that the beneficiary has applied the group financing exemption; (e) the total aid amount and its detailed calculation (principal aid amount and recovery interest) to be recovered from each beneficiary; (f) documents demonstrating that the beneficiaries have been ordered to repay the aid.

2 For each beneficiary, the United Kingdom shall supply the Commission with supporting evidence demonstrating how the extent to which non-trading finance profits from qualifying loan relationships fall within Section 371EB of Part 9A of TIOPA has been calculated.

3 For each tax payer, referred to in paragraph (1)(b) of this Article, the United Kingdom shall supply the Commission with supporting evidence demonstrating that the non-trading finance profits from qualifying loan relationships fall within Section 371EC of Part 9A of TIOPA and do not fall within Section 371EB of Part 9A of TIOPA.

4 The United Kingdom shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid in accordance with Article 2 has been completed. On request by the Commission, it shall immediately submit information on the national measures already taken and on those planned to be taken, in order to comply with this Decision, including detailed information on the amounts of aid and recovery interest already recovered from the beneficiaries.

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.