European Union going after Britain over tax rule for multinationals

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Britain has said it will co-operate with a European Union investigation into whether a special tax exemption for multinationals, meant to combat tax avoidance, is legal.

The competition watchdog said it will investigate whether a United Kingdom tax scheme is in breach of European Union state aid rules, by exempting transactions by multinationals from anti-tax avoidance rules. Anti-tax avoidance rules play an important role to achieve this goal.

EU Commissioner Margrethe Vestager said she wants to make sure that the British plan targeting tax avoidance does not allow some multinationals to pay less tax than other companies, which would be against EU rules. According to the Guardian, the European Commission is concerned that this gives an unfair advantage to multinationals, harming British competitors who do not have the luxury of shifting their money around the globe in this way.

As the Financial Times reported earlier this week, a freedom of information request from law firm Pinsent Masons revealed that the British tax authorities reckon multinationals used foreign subsidiaries to avoid £5.8 billion ($7.7 billion) in United Kingdom corporate taxes previous year alone.

The crackdown comes after the EU Commission announced earlier this year that it was taking Ireland to the European Court of Justice for failing to recover 13 billion euros (£11.5 billion) in tax from USA tech giant Apple. The EU said the rules in general are "an effective and important feature", but that the scheme since 2013 has included an exception for certain financing income of multinationals operating in the United Kingdom.

It also handed Amazon a bill of around 250 million euros (£221 million) in back taxes after stating that the firm's sweetheart tax deal with Luxembourg broke state aid rules.

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