UK tax rules for big firms face EU probe as Brexit talks stall

(Bloomberg) UK tax rules designed to lure multinational firms will be probed by the European Union, making Britain the latest target of an EU tax crackdown just as Brexit talks stall.

The UK Treasury said it planned to cooperate with the European Commission investigation and that it believed the rules weren’t incompatible with EU law. The probe will target controlled foreign companies rules introduced by previous Chancellor of the Exchequer George Osborne that aimed to keep firms in Britain. The Guardian reported the probe earlier Wednesday, saying an announcement will come on Thursday.

"We are clear that all multinationals must pay tax ‎on any profits they make in the UK, and our rules prevent these profits from being artificially diverted overseas," a Treasury spokesman said in a statement.

Ireland, Luxembourg, Belgium and the Netherlands have tried to battle the EU’s powerful antitrust regulator over tax incentives that attract big companies. Amazon.com Inc. was ordered to pay €250 million in back taxes to Luxembourg earlier this month. The EU is also suing Ireland for failing to swiftly recoup some €13 billion.

Avoiding taxes

UK lawmakers criticized the tax program in 2013, saying "it has become easier for companies to avoid tax." Osborne said a year earlier that the rules would "stop global firms leaving Britain as they were, and encourage them to start coming."

The EU probe comes as UK negotiations on exiting the bloc have failed to make progress. EU governments agreed Wednesday to begin planning in case the UK and the EU can’t manage to start talks on trade by the end of the year.

EU officials have promised to expand action on illegal tax breaks, saying it’s a "very large priority" and there may be many more cases in the year to come. Investigating how national tax breaks for big corporations may violate EU state aid rules has been a priority for the commission over the last few years. The watchdog has now been branching out and in addition to how a single company is taxed, it also has been looking at tax rules in several countries that affect a group of firms.