The European Commission has announced an in-depth investigation into a tax on the food retail sector in Slovakia, citing concerns that certain exemptions from the tax give some retailers a selective advantage over their competitors.
Under the rules, HM Revenue and Customs is allowed to relocate profits that have been artificially diverted back to the United Kingdom parent company, where they can be taxed accordingly.
The EU's powerful anti-trust authority on Tuesday said a tax break from Britain for unnamed multinationals was illegal under state aid rules, firing a shot at London amid Brexit chaos.
The scheme, the Commission argued, is "partially justified" as it ensures the proper functioning of the tax rules, but granted a number of multinational groups "unjustified exemptions", and therefore a selective advantage, which violates European Union legislation. However, if they were derived from United Kingdom activities, the exemption would not be justified.
The Commission found that the scheme was "partly justified" and did not constitute state aid as it ensured the "proper functioning and effectiveness of the relevant tax rules".
The Commission did not say which multinationals are affected nor did it give an estimate for the amount Britain would recover, leaving it to United Kingdom tax authorities to reassess the tax liabilities. But they must apply equally to all taxpayers.
The tax came into effect on 1 January, and the first payments were due to be made by the end of April.
"We are clear that all multinationals operating in the United Kingdom must pay their fair share of tax", a British treasury spokesman said in a statement. Our Controlled Foreign Company rules are part of a robust package of anti-avoidance measures that prevents United Kingdom profits from being artificially diverted overseas.
The Commission decision against the United Kingdom tax scheme comes amid growing uncertainty about the country's departure from the EU.
The Commission did not say which companies were involved, nor how much money the United Kingdom would need to recover.
The EU competition regulator said an exemption in the scheme for interest income earned by offshore subsidiaries between 2013 and 2018 - which had been criticised by tax campaigners as a major loophole - flouted EU laws.
"As long as the United Kingdom is an EU Member State, it has all the rights and obligations of the membership", the Commission warned following the decision.