The European Union is on course to hand dozens of U.K.-based companies a pre-Brexit tax bombshell, according to people familiar with a state-aid probe that could lead to bills exceeding 1 billion pounds ($1.3 billion).
A decision in the European Commissionâs investigation into a controversial tax break for U.K.-based multinationals will be ready later this year, well before Britainâs scheduled March 2019 departure from the EU, said the people, who asked not to be named because the process isnât public.
Forty-eight businesses, including Diageo Plc, Pearson Plc and Compass Group Plc, have warned of potential costs arising from the EU probe, more than in any prior state-aid investigation, according to data compiled by Bloomberg Tax.
Since 15 of those have estimated potential total exposure amounting to about 576 million pounds, the final figure for all those implicated could easily top the billion-pound mark. Some of the other firms have been advised to keep silent on the size of their exposure until the EU decision is published, according to one of the people.
None of the companies involved in the U.K. probe is accused of wrongdoing as the governmentâs tax system is the issue for regulators in Brussels.
âVery Significantâ
âThe amounts at stake are very significant, given the fact that the commission â as in any state-aid investigation â can look at the last 10 years,â said Nicole Robins, a partner specializing in state aid at economics consulting firm Oxera in Brussels. âYou just have to look at the Apple case for the potential magnitude,â she said, referring to the EUâs order forcing Ireland to claw back 13 billion euros from Apple Inc.
The investigation is one of the last targeting the U.K. before it formally enacts legislation to leave the bloc. Britain is subject to EU competition law until it is no longer a member. Since Prime Minister Theresa Mayâs government has sought a transition period, itâs too soon to say when the country will finally sever its ties.
Apple Taxes
Amid a crackdown on fiscal loopholes designed to help big companies, the EUâs competition commissioner Margrethe Vestager opened an in-depth investigation in October 2017 to uncover whether firms unfairly profited from the U.K. tax break introduced by the previous government. Like Irelandâs battle over whether Apple owes unpaid taxes, the commission will likely force the U.K. to recover the relief businesses have gained.
The EU Wednesday issued a 120 million-euro ($139 million) tax bill to French energy utility Engie SA as it concluded a state-aid probe into the companyâs fiscal arrangements in Luxembourg.
The U.K. case tops the previous record, an investigation into a Belgian program that benefited 35 businesses that led to a 2016 order to the government to recover about 800 million euros in back-taxes. The U.K. probe looks at an exemption that enabled parent companies to pay little or no tax on certain intra-group financing between two units based outside the country.
âThe U.K. is continuing to engage with the commission on their investigation,â HMRC, the countryâs tax authority, said in an emailed statement. Compass and Pearson didnât immediately respond to calls and emails seeking comment. Diageo declined to comment, as did the commissionâs press office.
âTax Avoidanceâ
Vestager told lawmakers this week that the EU is examining the U.K. rules âwhich are supposed to prevent tax avoidanceâ to check if they âactually treat some companies differently from others.â
She also warned that the EU would take a dim view of any U.K. plans to deviate from the EUâs tough approach to state aid once it quits the bloc.
âWe must make sure it doesnât give state aid that undermines a level playing field,â Vestager said at a European Parliament hearing on Monday.
A separate probe into corporate tax deals in the British territory of Gibraltar is also well advanced, according to one of the people. It could be wrapped up in a similar time-frame to the U.K. probe, the person said.
Any appeal of the ruling could end up tying Britain to the blocâs top courts for years to come. Taking the EU courtsâ latest statistics, appeals all the way up to the highest court could add at least another three years to proceedings.
â With assistance from Aoife White and Penny Sukhraj