The background lies in two cases before the Court of Justice of the EU (CJEU): the Cadbury Schweppes decision on CFC rules and the unfinished FII Group Litigation Order on dividends and double tax relief. The CJEU ruled that CFC rules may not be used to charge home country taxation on profits earned in an EU member state, unless the arrangements are artificial.

The impact of the FII case is less clear, although it seems unlikely that the UK could have maintained a system of corporate taxation on foreign dividends, while exempting UK dividends.