Corporate relocation - is it still worthwhile?

The names Shire, United Biscuits, Regus and Informa are probably etched on the hearts of Treasury ministers. These are among the high profile companies that have recently moved their headquarters out of Britain to more favourable jurisdictions. Most of these relocations took place prior to the credit crunch and the catalyst was often a concern over the government’s proposed Controlled Foreign Companies (CFC) regulations which were announced in the summer of 2007.

The original CFC proposals appeared particularly draconian with an intention to end the territorial basis of taxing income of foreign subsidiaries, moving instead to a system of taxing 'mobile passive' income. This caused major concern for international operations with UK-based headquarters and hence the appetite to relocate to a more favourable territory for tax purposes.

The 'substantial shareholding exemption' which exempts capital gains from corporation tax when UK trading groups sell trading subsidiaries makes it possible for UK parented groups to relocate their headquarters on a tax neutral basis to a more favourable tax regime not impacted by CFC rules.

The government has recently published a further discussion document on proposals to reform the CFC regime with a view to introducing the legislation in the Finance Bill 2011. It is clear from the tenor of the document that a more conciliatory approach is being taken with a suggestion that measures will “be targeted on artificial diversion of UK profit and not on taxing profits that are genuinely earned in overseas subsidiaries”.  The proposals also retain the territorial approach and abandon the controversial idea of taxing mobile passive income.

The next move?

UK-parented groups that are considering relocating their headquarters away from the UK may wish to postpone any decision until the details of the  new legislation are available, since the proposals which have been tabled in the discussion document may well address many of the concerns previously raised by industry.

Baker Tilly will be responding to the proposals on behalf of its clients generally and participating in discussions with HMRC and HM Treasury. If you would like to receive more details of the proposals, or wish to have your views represented, please contact us.