AS per European Commission, the UK needs to amend its law on CFCs as it
has failed to fulfill EU Treaty obligations.
In particular, the EC has
pointed to the continued taxation of the UK profits of subsidiaries established
in the EU or in member states of the European Economic Area (EEA). Under EU law,
profits of such CFCs should not be subject to additional taxation in the country
of the parent company if the subsidiaries are engaged in genuine economic
activities.
The Commission is of the view that despite having taken
corrective measures, the UK is still not fulfilling the stipulations of the
Treaty on the functioning of the EU and of the EEA Agreement on the freedom of
establishment and free movement of capital.
It is also noted that, in
some cases, the UK's regulations may lead to the additional taxation of profits
made by subsidiaries engaged in genuine economic activities in other EU member
states or EEA countries.The UK now has two months to provide the Commission with
a satisfactory response to its request. Failure to do so may result in the UK's
referral to the EU's Court of Justice.
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