The Court ruled on 12 September 2006 that the UK rules on controlled foreign corporations (CFCs), allowing the UK treasury to tax foreign subsidiaries in other EU states like UK residents, was limited to wholly artificial companies with no real economic activity. This judgement will make it easier for multinational companies to exploit low tax rates in other EU countries.
The judgement also confirms the relevancy of the Commission's efforts to develop EU-wide rules on taxation. Up to now, Member States have been unwilling to cede sovereignty in this area of competence. According to an EU tax spokesperson at the Commission, the EU should "better coordinate fiscal policies to avoid double taxation". She added that a common corporate tax base would help eliminate such problems.
In July 2004, the Commission produced a non-paper on the common tax base, which was discussed at that year's EcoFin. On 5 April 2006, Commissioner Kovacs issued a Communication on the "Progress to date and next steps towards a Common Consolidated Corporate Tax Base (CCCTB)".
