The multinationals have filed separate challenges with the EU General Court in Luxembourg, with the hearings likely to start in late October.

The move follows publication of findings of a European Commission investigation, which were published earlier this year. The Commission concluded that the group financing exemption, which formed part of the CFC rules, was partially justified but the exemption also grants a selective advantage to certain multinational companies, which is illegal under state aid rules.

The exemption is justified if interest payments on inter-company loans were issued by subsidiaries in offshore jurisdictions but not from activities generated in the UK.

Commissioner Margrethe Vestager, head of competition policy, said at the time: ‘The UK gave certain multinationals a selective advantage by granting them an unjustified exemption from UK anti–tax avoidance rules. This is illegal under EU state aid rules. The UK must now recover the undue tax benefits.’

Prior to the final decision, in its 2018 annual report, Vodafone stated: ‘On 26 October 2017, the European Commission published a preliminary decision to open a formal investigation in relation to the “group financing exemption” in the UK’s controlled foreign company rules and whether the GFE constitutes unlawful state aid.

‘The group has made claims under the GFE for practical reasons, however given that the group’s Luxembourg financing activities are properly established and operate in accordance with EU and local law as well as the OECD’s transfer pricing guidelines, we do not anticipate any significant impact should a finding of unlawful state aid be ultimately upheld.’

The number of companies affected by the EU ruling is believed to be over 50, and their joint tax liabilities could be as much as £1.35bn according to analysis by Bloomberg Tax.

In June, the UK Treasury lodged an annulment application in the General Court challenging the decision.

Both BT and GlaxoSmithKline have confirmed that they filed an application to the General Court regarding the Commission’s decision on the UK’s group financing exemption to the CFC rules, but would not comment as the appeal is ongoing. Vodafone has not responded.

Between 2013 and 2018, the UK's CFC rules included a special rule for certain financing income (ie, interest payments received from loans) of multinational groups active in the UK. This group financing exemption was modified at the end of last year in a way that no longer raises concerns, the EU has said. The commission declined to comment on the UK court challenge.

Pat Sweet | 19-07-19