'Two or three' companies to follow Shire offshore
Shire's decision to go offshore is certainly exercising a few minds. I'm told by Bill Dodwell of Deloitte that a further 'two or three' companies are set to announce similar moves 'in the next month or two'.
Perhaps the first thing to note is that this is not about UK tax rates. If you look at the company's annual report (pdf, p.80) for the year ending December 2006, it notes a UK tax credit, rather than charge, of $44m (£22m).
The company is being a bit coy, but the only possible tax reason is the changes to CFC rules, first outlined in Gordon Brown's last PBR.
The Treasury wants companies to pay more tax on their foreign profits. So if you put a treasury function offshore, you can't get away with booking the profits offshore: it is a UK profit and subject to UK tax.
The UK wants to define 'passive' income from such subsidiaries, but it is clearly not doing a very good job of reassuring multi-nationals that it is going to do so sensibly.
The problem for Shire and others is they are worried that all the brands they have, perhaps developed in the UK, might generate profits in other countries that the UK will try and get its hands on.
You can debate whether that's right, and it's not clear cut, but the reason Ireland is attractive is because it doesn't have a regime to tax foreign subsidiaries, or controlled foreign companies, in the same way. So foreign profits are protected.
Again, I should stress I don't think Shire are saying this explicitly, but it can be the only reason really for the move.
Dodwell suggests companies should wait and see what happens with the government's consultation, but some clearly can't wait. All in all, worrying times for the Treasury
P.S. Some debate in the UK seems to be about whether our tax rate is too high. It's actually not really relevant here, since Shire will still pay tax on its UK income (and doesn't pay much anyway). But it is an interesting question.
The Treasury says we're fine: our tax rate is lower than those of similar countries. True, but our corporate tax burden is higher. Look at page 167 of the IFS's Green Budget from 2006, showing the corporate tax burden as a share of national income. For the UK, the number is 3.3%. For Germany and the US, with higher tax rates, the numbers are 1.3% and 2.2% respectively.
The message of course is that the tax base is as important as the tax rate. (the IFS further notes that the financial sector in the UK may explain some of this, but that surely doesn't argue it away completely).
The facts of the matter almost become unimportant. High profile moves out of the UK for "tax reasons", whether they be technically justified or not create a poor International image of the UK tax system, a difficult thing to repair.
I will post on this further myself.
Every Friday, BOREDACCOUNTANT.CO.UK
Posted by :BAcc | April 16, 2008 10:31 PM