A no-deal Brexit could create yet another headache for the European Union as it prepares to hand dozens of UK-based companies a tax bill that is expected to top $1.5 billion.
With just over two months until Britain’s scheduled departure date of March 29, time is running out for the European Commission to order the U.K. to recoup money from companies granted illegal tax breaks. A decision is likely just before Brexit, people familiar with the case have said. But how the EU could ensure U.K. compliance with any order isn’t clear.
“The issue is not the chance of an appeal,” and which court would hear it, “but how to actually enforce a decision taken just before the Brexit date,” said Raymond Luja, a tax professor at Maastricht University in the Netherlands. “What if the U.K. simply would ignore it?”
A no-deal Brexit would mean the withdrawal agreement and transition period negotiated for months toward an orderly EU exit, wouldn’t apply. The U.K. and its two judges would cease to be part of the European Court of Justice in Luxembourg, raising questions of how the EU could enforce court decisions on a country that’s left the bloc.
Biggest Firms
Fifty-three companies, including Diageo Plc, Pearson Plc and Compass Group Plc, have warned of potential costs arising from the EU probe, according to data compiled by Bloomberg Tax. Twenty-three of those, among the U.K.’s 250 largest firms, have disclosed potential tax repayments amounting to about $1.5 billion.
Amid a crackdown on loopholes designed to help big companies, EU Competition Commissioner Margrethe Vestager opened an in-depth investigation in October 2017 to uncover whether firms unfairly profited from a U.K. tax break. Like Ireland’s battle over whether Apple Inc. owes unpaid taxes, the commission could force the U.K. to recover any windfalls.
The case is one of the EU’s last to target the U.K. before Brexit day. The EU in December concluded a separate probe into corporate tax deals in the British territory of Gibraltar, with an order to reclaim some 100 million euros ($113 million) in tax breaks.
Under normal circumstances, the U.K. would have two months to appeal any decision in EU courts. An order made before the end of March would remain valid and the U.K. would likely be able to appeal it, even as a non-EU member, lawyers said. [...]
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