| Author (Person) | McLauchlin, Anna |
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| Series Title | European Voice |
| Series Details | Vol.12, No.16, 27.4.06 |
| Publication Date | 27/04/2006 |
| Content Type | News |
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By Anna McLauchlin Date: 27/04/06 A British confectionary and drinks company could cost treasuries across the EU billions of euro and put more pressure on high corporate tax rates, if it wins an upcoming case at the European Court of Justice (ECJ). An advocate-general will deliver his opinion on Tuesday (2 May). Cadbury Schweppes, which markets food and drinks brands across the world, claims that a piece of UK tax legislation - known as the 'controlled foreign company' law (CFC) - runs contrary to EU internal market law by stopping companies from taking advantage of lower tax rates in countries where they have subsidiaries. The rule meant that profits turned by two Cadbury Schweppes subsidiaries in Ireland were attributed to the UK firm and were therefore subject to UK tax rather than the Irish rate of 10%, one of the lowest in the EU. Cadbury Schweppes argues that EU law gives it the freedom to organise legally its businesses in order to minimise its tax burden and that the Irish subsidiaries, as legitimate business interests, were exercising this freedom. The company also complained that the CFC law effectively exported the UK tax rate to other jurisdictions. But the UK government claimed that the CFC regime applies only to those companies which set up artificial subsidiaries that were not financially justified with the sole intention of avoiding tax. Olivier Rousselle, tax associate at Jones Day in Brussels, said that if the ECJ ruled in favour of Cadbury Schweppes, those member states that had imposed similar CFC rules to the UK were likely to see more resident companies setting up businesses elsewhere in the EU. "There are around 11 member states which have some form of CFC rules and they could be affected by the ruling," he said. According to Guy Brannan, head of tax at Linklaters law firm, if the court applies strict case-law then the UK government is set to lose, but the court could try to find a middle ground to limit the fallout as it did with the recent high-profile case involving UK clothing firm Marks and Spencer. But Brannan said that the Cadbury Schweppes case was relatively weak and other cases were still likely to break the stranglehold of CFC rules. "They could find some way of ruling that if the only motive of setting up another business is tax avoidance then the CFC rules apply," he said, "but that would not bind other cases where the subsidiary has been established for genuine commercial reasons plus the obvious tax ones." A Cadbury Schweppes victory could put further pressure on tax competition in the EU, which has already intensified over the past couple of years. According to a global corporate tax survey published by KPMG this month, rate cuts in 2005 were most pronounced in the EU, with six countries slashing their corporate income-tax rates. KPMG attributes the trend both to the pressure of low corporate rates in the ten new member states that joined the EU in 2004 and to legal jurisprudence that has backed the free movement of capital within the Union. Even if the advocate- general rules in Cadbury Schweppes's favour, the court may not follow suit. In the past, the court has upheld the advocate-general's opinion in around 80% of cases and the opinion has largely been in favour of the taxpayer. But in two recent cases, concerning Belgian mobile phone firm Mobistar and an individual known simply as 'D', the court did not follow the advocate-general's view. "These judgements are very unpredictable at the moment," said Rousselle. Article anticipates the publication of the Advocate-General's opinion, expected for 3 May 2006, in a lawcase in which UK company Cadbury Schweppes challenged a UK piece of tax legislation known as the 'controlled foreign company' law (CFC). The company argued that the law was in breach of EU internal market law by stopping companies from taking advantage of lower tax rates in countries where they have subsidiaries. |
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| Source Link | http://www.european-voice.com/ |
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| Subject Categories | Law, Taxation |
| Countries / Regions | United Kingdom |
