ICAI has welcomed the ruling by the Advocate General of the European Court of Justice in the Cadbury Schweppes case published on Tuesday 2 May.

In his ruling, the Advocate General states categorically that the establishment of a company in a country with a favourable tax regime to benefit from lower tax rates does not constitute in itself an abuse of the EU Freedom of Establishment rules. The case was taken by the Cadbury Schweppes group and concerns its subsidiaries in the IFSC.

The Advocate General's comments are even stronger in the light of his recognition that not all decisions to locate businesses in this country are driven by artificial tax avoidance reasons. It must be noted, however, that his opinion is not binding on the Court.

If the Court does concur with the Advocate General, it will throw into doubt the operation of the Controlled Foreign Companies legislation in the UK. The Court's statement on the matter can be found at 2.01 below.