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The European Commission announced in an April 2 press release that the Group Financing Exemption (GFE) within the UK Controlled Foreign Company rules is ‘partly justified.’ The UK CFC rules broadly allow the United Kingdom to tax the income of overseas subsidiaries controlled by a UK corporate parent where that income is regarded as artificially diverted from the United Kingdom.

The formal EC investigation concerns what is commonly called as the ‘Finance Company Partial Exemption’ (described by the EC as the Group Financing Exemption, or GFE).

This exemption was introduced in the 2012 revision to the UK CFC rules, effective from January 1, 2013, and means that a business with offshore financing arrangements may, in certain circumstances, be subject to a reduced CFC charge with respect to the
finance income (reduced by a range between 75% and 100%).

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