Concessions help UK regain role as tax haven

Concessions help UK regain role as tax haven

By Vanessa Houlder in London and Haig Simonian in Zurich

Published: April 15 2008 16:21 | Last updated: April 15 2008 16:21

Britain is once again eligible to market itself as a tax haven following recent concessions to “non-dom” residents, according to a firm of advisers.

Grant Thornton said it was dusting down proposals to attract Indian entrepreneurs to Britain which were shelved last October when Alistair Darling, chancellor of the exchequer, first announced higher taxes for foreign residents. The new tax regime was watered down last month, in a move that has partially restored the UK’s appeal to wealthy foreigners.

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Shire and UK tax: Yesterday’s CityA.M. exclusive has caused a stir in the City and Westminster

16/04/2008
Shire and UK tax: Yesterday’s CityA.M. exclusive has caused a stir in the City and Westminster

SHIRE Pharmaceuticals’s decision to shift its headquarters to Ireland for tax reasons came as a bolt from the blue yesterday for the beleaguered HM Revenue & Customs and Treasury.

Even though Shire pays relatively little UK tax — much of its business is in the US — it is a FTSE 100 company and valued at more than £5bn. In prestige terms alone, its departure does not look good for UK plc.

Navid Malik of broker Collins Stewart said: “The move came as a complete surprise and must be an alarming one for the government. We’ll be asking Shire when they produce their results on 25 April how much this will save them, but we see the tax rate coming down from around 25 per cent to 22 per cent.”

One tax accountant, who declined to be named, looked at Shire’s announcement yesterday and exclaimed: “What is terrifying is that it is so easy to do. Why won’t Glaxo and AstraZeneca do the same?” So what exactly does Shire intend to do?

Shire said yesterday it would become a subsidiary of Shire Limited. While the group’s operations will remain headquartered in the UK near Basingstoke and be based largely in America, the holding company will be incorporated in the tax haven of Jersey and duties will be paid to the Republic of Ireland.

The company stands to benefit because it is reliant on America for sales. Of its $2.44bn (£1.24bn) revenue reported last year, about 10 per cent came from the UK market, compared with 75 per cent generated in North America, and 15 per cent from other regions.

By taking advantage of this international structure, Shire could avoid any proposed amendments to UK tax law on income generated abroad, which may have led its corporation tax rate to increase to more than 30 per cent.

The company said in a statement: “Shire has concluded that its business and its shareholders would be better served by having an international holding company with a group structure that is designed to help protect the group’s taxation position, and better facilitate the group’s financial management.”

Assuming the move gains shareholder and court approval, investors will receive stock in the holding company on a one-forone basis.

Tax experts say that the government needs to make the UK’s corporate tax system more competitive if it is to avoid a trickle of corporate departures turning into a flood.

Internet giant Yahoo recently said that it would move its European headquarters from London to Switzerland for tax reasons and banking firm HSBC is known to have considered a similar move.

The Treasury, for its part, will be hoping that the recent reduction in corporation tax from 30 per cent to 28 per cent might sway any other corporates considering a move.

But the government’s recent indecision over the implementation of a levy for non-doms as well as a change to the capital gains tax system has cast a shadow over its thinking about tax.

One tax specialist said: “It’s the uncertainty that does it for many companies — not even the rates themselves. “We seem to have entered an era where we no longer know what the government will do to tax in the future.”

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Ireland a possible tax haven as exiles desert UK

Ireland offers the non-dom everything England is taking away, said Jim Ryan, a personal tax partner at Ernst & Young Tax Services in Dublin and deputy president of the Irish Taxation Institute
Tools

By Poppy Trowbridge
Thursday April 10 2008

Francine Stone, who was born in Pennsylvania, in the US, has called Britain home for over 25 years. The researcher on Middle Eastern and Islamic affairs says a new tax on foreign-born residents will drive her out.

British Prime Minister Gordon Brown, responding to unions and Labour Party lawmakers, is eliminating rules that let foreigners avoid taxes on income from abroad.

While the plan will extract the most from millionaires, it may also make life in Britain unaffordable for people like Stone who rely on overseas investment income to pay their bills.

Global Income

Foreigners who have lived in Britain for more than seven years and claim their tax home is elsewhere must declare and pay taxes on their global income beginning this week. To avoid doing so, they will have to pay a £30,000 (€38,000) annual fee.

"It's the self-respecting, honest, not 'super-rich' people who are being lumped together with the very wealthy,'' said Stone (63), who's lived outside Wallingford since 1983.

"We don't deserve to be targeted.''

So-called non-domiciled residents who don't pay the flat fee will be subject to the same tax on income from overseas assets as Britons, adding £700m (€876m) to the British government's coffers through fiscal year 2010, according to the UK Treasury.

"Non-doms'' already contribute about 2.7pc, or £4bn (€5m), of the UK's annual income tax revenue, the Treasury Office explained.

While about 115,000 foreign-born residents will be subject to the rule change, only 4,000 of them are likely to pay the £30,000 fee, Chancellor of the Exchequer Alistair Darling estimates.

For the rest, the new taxes will be less than the exemption fee. For example, a Dubai-born non-dom who is living on investments producing interest of £50,000 a year would be subject to a tax bill of £20,000.

In Dubai the income tax rate is zero.

Some transplanted Londoners say the rules were too lenient for long-time residents.

Walter Zwick (66), a US-born retired computer consultant who's lived in the London neighbourhood of Battersea since 1975, doesn't mind paying more tax. He estimates his tax bill will jump by about £1,000, mainly because of offshore income he and his family use for holidays.

"If you've been here 33 years, it's difficult to say you're non-domiciled,'' Zwick said. "Everyone has always known that this was a somewhat unreasonable concession.'' Non-doms who move away may sabotage the plan by cutting the existing tax revenue, said Philip Keevil, senior partner at Compass Advisers LLP and former head of European mergers and acquisitions at Citigroup.

The UK government estimates that about 3,000 people will leave Britain because of the new rules. "It won't take many to leave for the amount the Treasury loses to exceed the amount they will gain from those staying and paying,'' said Keevil (61). He blames "the politics of envy'' for the notion that foreigners evade taxes.

Confusion over the rules is blunting London's attractiveness as a place to settle and do business, said David Treitel, a tax director at US Tax and Financial, a London-based accounting firm.

"This is a complicated, convoluted set of circumstances,'' he said. "The politicians think the non-dom changes affect only the wealthy.''

The higher taxes will cut deeply into the income of middle-class earners, such as college professors and writers, according to Treitel. Bills for tax preparation will effectively double to about £2,000, he said.

Proposals Softened

Anger over the tax changes led the Brown government to soften some aspects of its initial proposal.The £30,000 charge can be offset by foreign taxes and reduced by the value of art work brought into the UK for public display or repair.

The Treasury also will tax only overseas earnings of more than £2,000 per individual, double the threshold announced in December.

Emma Cheevers (30), a Canadian journalist and fashion consultant based in London, was drawn to the city by the "best- of-the-best'' in her industry. She said the tax rules build a glass ceiling on success and income.

"I don't mind paying taxes, but if I am going to be punished because I am foreigner, I'll be leaving,'' she said.

Ireland offers the non-dom everything England is taking away, said Jim Ryan, who is a personal tax partner at Ernst & Young Tax Services in Dublin and deputy president of the Irish Taxation Institute.

Non-doms in Ireland still enjoy the breaks that are disappearing in the UK. The Irish government estimates that more than 7,000 people live in Ireland as non-doms.

While Stone agrees with the goal of fairness, she thinks the new rules are too harsh.

"If it were more justly targeted I might say, 'Right On!', being a brown-sandal-wearing lefty,'' she said. "But we are seriously considering our next move.''