The European Commission announced on 26 October that it has initiated proceedings against the UK on the grounds that its CFC rules may infringe EU State Aid law. The Commission’s challenge focuses on the fact that certain offshore group financing subsidiaries of UK parented groups are effectively excluded from the UK’s CFC rules. As a result, these subsidiaries not only pay little or no foreign tax in the country they are located but also little or no UK tax under the UK’s own taxing rules. The Commission is investigating whether this is contrary to the EU’s state aid rules because it gives special treatment to low taxed financing income whereas other types of income that is artificially shifted to low taxed foreign subsidiaries is taxed in the UK.  This is just the first step in the procedure and the full picture will only be clear once the Commission has finished its investigation.