Cadbury case just one small battle in long hard struggle

The European Court of Justice’s ruling on controlled foreign companies (CFCs)
may have cued the popping of champagne corks in the Cadbury Schweppes
headquarters last week.

But after the party poppers had been swept up, the realisation would have
dawned at 25 Berkeley Square that the ECJ ruling was just one small battle in
what experts are predicting will be a long, hard war.

In its ruling, the ECJ said that Cadbury Schweppes had done nothing wrong
when setting up Cadbury Schweppes Treasury Services (CSTS) and Cadbury Schweppes
Treasury International (CSTI) in Ireland, with the specific purpose of taking
advantage of the country’s low tax rate.

The ECJ did, however, leave it to the special commissioners in the UK to
decide whether the chocolate maker’s arrangements were genuine businesses.

In a statement reacting to the ECJ judgement, the Treasury said it ‘welcomed
the fact that the ECJ has endorsed the appropriateness of rules to counter tax
avoidance through artificial profit shifting’. Hardly the talk of a defeated

The government added that it would see ‘what, if any, changes to the UK’s
Controlled Foreign Companies rules are needed to sustain their effectiveness in
protecting tax revenues’.

‘We can expect HM Revenue & Customs to fight this all the way. If a
special commission rules in favour of Cadbury, HMRC will appeal,’ Bill Dodwell
of Deloitte said.

A long, hard slog would be consistent with the Treasury’s policy on big
corporate cases all along. Cadbury Schweppes best be ready for the journey.

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