Jonathan Browning, Stephanie Bodoni, and Ben Stupples
The EU is on course to hand dozens of UK-based companies a pre-Brexit tax bombshell, via a state-aid probe that could lead to bills exceeding £1bn (€1.1bn).
A decision in the European Commission’s investigation into a controversial tax break for UK-based multinationals will be ready later this year, well before Britain’s scheduled March 2019 departure from the EU, according to sources.
A total of 48 businesses, including Diageo, Pearson, and Compass Group, have warned of potential costs arising from the EU probe, more than in any prior state-aid investigation.
Since 15 of those have estimated potential total exposure amounting to about £576m, the final figure for all those implicated could easily top the billion-pound mark.
Some of the other firms have been advised to keep silent on the size of their exposure until the EU decision is published. None of the companies involved in the UK probe are accused of any wrongdoing — it is the British government’s tax system that is at issue for the Brussels-based commission.
“The amounts at stake are very significant, given the fact that the commission — as in any state-aid investigation — can look at the last 10 years,” said Nicole Robins, a partner specialising in state aid at economics consultancy Oxera in Brussels.
“You just have to look at the Apple case for the potential magnitude,” she said, referring to the EU’s order forcing Ireland to claw back €13bn from Apple.
The investigation is one of the last targeting the UK before it formally enacts legislation to leave the bloc. Britain is subject to EU competition law until it is no longer a member. With a transition period, it’s too soon to say when the country will finally sever its ties.
Amid a crackdown on fiscal loopholes designed to help big companies, the EU competition commissioner Margrethe Vestager opened an in-depth investigation in October 2017 to uncover whether firms unfairly profited from the UK tax break introduced by the previous government.
Like Ireland’s battle over whether Apple owes unpaid taxes, the commission will likely force the UK to recover the relief businesses have gained.
The UK case tops the previous record, an investigation into a Belgian programme that benefited 35 businesses that led to a 2016 order to the country’s government to recover about €800m in back-taxes.
The probe looks at an exemption that enabled parent companies to pay little or no tax on certain intra-group financing between two units based outside the country.