UK firms flee high taxes

The world's biggest provider of serviced office space, Regus has joined Procter & Gamble, Colgate, Google UK, WPP Group, Henderson Group and Yahoo UK in fleeing the UK's uncompetitive tax structures, making it the third British company to do so last week after engineering firm Charter and asset manager 'Henderson.

Publishing group 'United Business Media' and pharmaceutical company 'Shire' who had blamed the high tax rates in the UK - 28 per cent - were the first to announce their intention to shift over to Ireland, followed by the world's second- biggest advertising company WPP Group Plc, among others. Ireland's corporation tax on profits is only 12.5 per cent in comparison.

Regus will be relocating to Luxembourg, while Charter, which owns the international engineering companies ESAB and Howden will relocate to Ireland along with Henderson where the tax regime is more business-friendly. For Henderson it must have been a painful decision which had its head office in Britain throughout its 74-year history.

Conservative shadow chancellor George Osborne, sent an open letter to chancellor Alistair Darling blaming the government for the corporate taxation mess and demanded an immediate cut in corporate taxes from 28 per cent to 25 per cent and wanted further reforms in the tax structure to stop the exodus from England.

He said the government should adopt the proposals put forward by an expert group chaired by the former chancellor, Lord Howe, which recommended a permanent simplification of Britain's highly complex tax system.

In May, chancellor of the Exchequer Alistair Darling had set up an international tax forum in which he met the chief executives of some of Britain's biggest companies persuading them to stay in the country.

The fresh exoduses are a further blow for the government, already faces falling corporate refenues because of the credit crunch and economic downturn.

The British government insists that UK offers one of the most competitive business tax regimes of any leading economy, including the lowest headline rate of corporation tax in the G7, and that foreign investment flows remain healthy.

They say that there is no large-scale exodus from Britain and the movement in and out of corporate headquarters is for a variety of reasons.

Experts say that by reducing corporation tax by 3 per cent was not going to make a difference as it would not compete with Ireland's rate of 12.5 per cent. Taking Henderson as an example who is moving to Ireland and has £47 billion in assets under management, they say the firm's foreign profits will be charged at the Irish rate rather than the full UK rate, saving the company about £8.5 million a year.

Although relocating abroad is a major and expensive operation for the Henderson Group, costing £4.5 million, the much lower Irish taxes would more than offset this.

Mid-tier companies are up in arms against the government's taxation of profits generated by its subsidiaries outside the UK. There is all round concern caused by the recent changes to the UK tax laws that may well drive global firms and highly skilled individuals away from London at significant cost to the UK economy in terms of lost revenues and lost taxes.

The latest British budget raised capital gains tax from 10 per cent to 18 per cent and imposed a £30,000 annual levy on non-domiciled workers. Terra Firma and its 100 employees from 20 different countries paid a total of £15.2 million in corporation tax, income tax and national insurance last year.

Other countries are competeting for corporates to move their bases to their country and tax is one of the key things that motivate a company to move. There is too much uncertainty about the long-term tax structure in UK, compelling companies to look at countries with friendlier tax structures especially in the current scenario of global economic slowdown.

Ireland with corporate-friendly tax structures has a 12.5 per cent corporation tax on profits. Companies incorporated in Jersey but domiciled in Ireland will even avoid stamp duty on Irish shares. Irish tax benefits for holding companies is that disposals of subsidiaries are free of Irish capital-gains tax in certain circumstances. Ireland also has a fairly large tax-treaty network with an attractive tax treatment for foreign dividends.

Most crucial to the present corporate exodus problem in the UK is that Ireland does not have the ''controlled foreign company'' legislation, under which Britain taxes the profits of its overseas subsidiaries.

The British Venture Capital Association is of the opinion that the risk of higher taxes could force private equity bosses out of the country. Brit Insurance said it was contemplating following the ranks of insurance companies that have left for the tax haven of Bermuda.

Procter & Gamble and Colgate Palmolive recently made a decision to house their European bases in Switzerland rather than London, while Yahoo UK is in the process of moving its headquarters in UK to Geneva.

There had been speculations that HSBC would also relocate out of UK.

With couple of hundred employees in UK for its European operations, Google UK chose Zurich as its base over London. Electronic Arts, the video games maker has taken its engineering headquarters to Zurich, and arch-rival SCI, maker of the Tomb Raider series, is leaving Wimbledon for Canada.