European Court rules in favour of multi-nationals

The European Court of Justice (ECJ) has ruled today that businesses are entitled to set up in countries such as Ireland which have a favourable tax regime.

The Institute of Chartered Accountants in Ireland (ICAI) has welcomed the ruling in the ongoing Cadbury Schweppes case.

Attempts by other countries such as the United Kingdom, to tax Irish profits arising in multi-national groups of companies will be illegal under European Community law save in exceptional circumstances.

ICAI director of taxation Brian Keegan said: “We are very pleased that the Court has effectively blocked a restrictive tax regime which could put Irish established businesses at a disadvantage.

"The Court’s provision that restrictive tax measures to counter wholly artificial cross border arrangements remain legal is both fair and workable.”

The specific legislation which was examined is UK legislation is known as Controlled Foreign Companies legislation.

This legislation permitted te UK's Revenue and Customs to deem income earned by Irish companies to be the income of their UK parent companies and thus subject to UK taxes.

It will now have to be revisited by the UK authorities at least on a case by case basis.