(TDB) - Diageo, the world’s largest premium alcoholic beverage group, is caught in the crossfire in a row between the European Union and the UK Treasury which could cost it £278 million in back tax.

The dispute centres on a tax scheme introduced in 2012 by the then Chancellor of the Exchequer George Osborne. It involves complex “controlled foreign company rules” covering how tax is levied on interest payments on inter-company loans made by offshore subsidiaries.

After an 18-month investigation, the European Commission has ruled that Osborne’s tax scheme gave an unfair advantage to multinational companies based in the UK and has ordered the Treasury to reclaim more than £1 billion from about 50 companies including Diageo.

The EU says the scheme falls foul of its rules designed to stop big companies avoiding tax by moving profits into countries where taxes are low. It says the measures introduced by Osborne were tantamount to state aid.