Relocating companies spark UK tax review

Relocating companies spark UK tax review

By FT reporters

Published: April 29 2008 14:11 | Last updated: April 30 2008 03:32

Alistair Darling on Tuesday launched a review of the competitiveness of the UK’s tax system, as a leading accountant warned a “bandwagon effect” could create a flood of companies fleeing the country for tax purposes.

The move follows decisions by Shire, the UK’s third-biggest pharmaceutical company, and United Business Media, the publisher, to relocate headquarters to Ireland for tax reasons.

WPP warned the UK’s complex corporate taxation could force it to relocate. Sir Martin Sorrell’s advertising group said it would decide after examining Treasury proposals on taxing foreign profits due out this summer. AstraZeneca, the drugs group, also would not rule out relocating.

At the heart of the dispute are plans to change the tax treatment of UK companies with overseas subsidiaries to stop them reducing their bills by diverting profits to low-tax jurisdictions.

With the row threatening to further undermine the government’s reputation for economic competence after a series of budget retreats, the chancellor moved to stop the trickle of departures from growing.

Mr Darling said he was inviting multinationals to sit on a new working group to advise ministers on the “long-term challenges” facing the UK tax system. “We need to anticipate a growing problem for all governments – how to protect revenues in an increasingly global marketplace...while promoting the competitiveness of our businesses,” he said in a speech in the City.

Hilary Benn, the environment secretary, on Tuesday announced he would be selling his shares in UBM because he “does not wish to be drawn into this matter”.

KPMG warned of the “danger of a bandwagon effect here”. John Griffith-Jones, head of KPMG Europe, told the FT that the Treasury was concentrating on closing loopholes but “they need to look at this through a corporate lens...the fact is, the shop down the road is selling [business taxation] for less”.

The CBI employers’ organisation said it recognised the government had “little room for manoeuvre” to offer tax cuts in the short-term. But Richard Lambert, the CBI director-general who is expected to sit on the new working party, said he wanted to see “certainty and clarity and a sense of direction” on taxation in the medium-term. “I don’t want this to be a talking shop,” he told the FT. “There is a real problem for the UK here.”

George Osborne, shadow chancellor, said: “The chancellor doesn’t need a review to tell him now is not the time to be increasing capital gains tax, increasing small business tax and making the tax environment less attractive for multinationals.”

The Treasury said the working group would not be a “substitute” for consultation but was an overhaul of the way foreign profits were taxed. The government fears it could lose £1bn in tax revenues if it caves into industry pressure to relax the proposed anti-avoidance regime.