Cadbury Schweppes and beyond: the future of the UK CFC Rules Part I

This article is divided into two parts. In Part I, Richard Wellens examines the background to the United Kingdom’s CFC regime, the Cadbury Schweppes [1] case and the response of the UK government to the decision of the ECJ. In Part II, which will be published next month, the Vodafone 2 [2] case is analysed and recent changes to the United Kingdom’s CFC regime are examined for compatibility with Community law.

Richard Wellens is a part-time student of the University of London’s MA in Taxation, delivered through the Institute of Advanced Legal Studies and works in the Corporate Finance division of Commerzbank in London. He is responsible for structuring and executing tax-efficient financing transactions both for the bank and its clients, utilising debt and equity-based structures in the UK and other European jurisdictions. Richard can be contacted at richard.wellens@commerzbank.com.

1. History of UK CFC legislation

The abolition of exchange controls in the UK in 1979 was seen to give UK resident companies the opportunity to divert and accumulate profits in so-called tax havens and/or lower tax jurisdictions[3]; profits which would otherwise have been subject to tax in the UK.