Brussels - The EU has announced a major probe into a British scheme protecting multinationals from tax avoidance rules, in the latest move in the bloc's campaign to get international companies to pay their share.
Europe's competition chief Margrethe Vestager will investigate whether certain exemptions allowed under British rules amount to a breach of European Union regulations against state aid.
The EU has waged a major crackdown on member states bending rules to give big international firms unfair tax breaks in recent years, with US tech giants such as Apple and Google in the firing line.
"We will carefully look at an exemption to the UK's anti-tax avoidance rules for certain transactions by multinationals, to make sure it does not breach EU State aid rules," EU competition commissioner Vestager said in a statement on Thursday.
The announcement of the investigation comes as London and Brussels are mired in slow-moving negotiations over Britain's departure from the EU in March 2019.
But the commission said that as long as Britain remains in the bloc, "it has all the rights and obligations of the membership".
"In particular, EU competition law, including EU State aid rules, continue to apply in full to the United Kingdom and in the United Kingdom until it is no longer a member of the EU," the commission said in a statement.
The scheme the commission will investigate centres around an exception to Britain's "controlled foreign companies" rule, which was brought in to stop multinationals moving profits to offshore subsidiaries to avoid paying tax.
The so-called "group financing exception" introduced in 2013 exempts from British taxation interest received by a parent company's offshore subsidiary from another foreign subsidiary.
"Generally speaking, financing income is often used as a channel for profit shifting by multinationals, given the mobility of capital," the commission said.
- Tax avoidance campaign -
A spokesman for Britain's Treasury said its rules prevented profits from being artificially diverted overseas to avoid tax and defended the financing exception, introduced by former finance minister George Osborne.
"We do not believe these rules are incompatible with EU law but will cooperate with the European Commission’s investigation," the spokesman said.
Investigations of this kind usually last over 18 months and so the result could come after Brexit, but commission spokesman Alexander Winterstein insisted it was still right to run the investigation.
"One thing is clear -- as long as a member state is a member of the single market, it remains subject to European competition rules, including rules on state aid and everything else," he said.
Some European nations have been stepping up pressure on big multinationals, many of them American, which they accuse of booking huge profits while denying state-coffers much-needed money.
France has a led a major push in the EU to increase taxes on mega tech firms such as Google and Facebook, but met with resistance at a summit last week from the likes of Ireland and Luxembourg, which have become major centres for big tech firms.
The EU has turned the screw on US tech giants recently, earlier this month ordering Amazon to repay Luxembourg 250 million euros in back taxes and taking Ireland to court for failing to collect billions from Apple.
Vestager last year ordered iPhone manufacturer Apple to repay 13 billion euros ($14.5 billion) in back taxes to Ireland, and in June the EU slapped Google with a record 2.4-billion-euro ($2.8-billion) fine for illegally favouring its shopping service in search results.
By Damon Wake