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On 2 April 2019, the European Commission (EC) issued a press release announcing its conclusion  that the UK Finance Company Partial Exemption Rules (the FCPE rules) is partly justified for the period from 2013 to 2018 (for more detail read our news report).

The UK government is now required to initiate recovery of the alleged State aid irrespective of any appeal against the decision.  It seems most likely, at this stage, that recovery will be based on the extent to which the UK has significant people functions. This means that the taxpayers who benefitted from the FCPE rules will need to assess the profit allocable to UK significant people functions (SPFs) in order to determine whether, in light of the Commission decision, they have benefited from State aid which must be recovered  for the historic periods.

HMRC has indicated that it will be issuing guidance that explains how it will approach the recovery.  This article outlines, what we consider to be the steps that are likely to be required for this analysis, explains the meaning of the term “SPF” and next steps to be considered by the business.    

Steps required for the analysis

The affected taxpayers will need to undertake an analysis per sections 371EA-EE, Part 9A, Finance Act 2012 under Chapter 5 of the UK CFC legislation. This requires an analysis following the steps outlined below: