Tax experts are sceptical on whether the UK government’s plan to introduce a corporate re-domiciliation regime will have a greater impact beyond being used as a tool for improving companies’ public image.
“Being UK incorporated brings with it some advantages,” says Charlotte Sallabank, London tax partner at Katten Muchin Rosenman. “It’s a very well-respected jurisdiction so there is the thought that multi-national groups, that have within their group structures something like Cayman Islands, [re-domiciling to the UK] would cleanse their group from criticism.”
John Cullinane, director of public policy at the Chartered Institute of Taxation (CIOT), is unconvinced the introduction of the new regime in the UK will have a significant impact on re-domiciliation activity.
“I find it hard to see it making much of a difference to anything,” says Cullinane. “There are circumstances where companies have companies incorporated somewhere else but are nevertheless tax resident in the UK. So, to avoid awkward questions, it might be useful to be able to make them fully UK companies and put a better face on the world or the UK’s public opinion.”
In a now closed consultation between HM Treasury, HMRC and the Department for Business Energy & Industrial Strategy (BEIS), the government sought views on the structure of a regime with the intention to “strengthen the UK’s position as a global business hub”.
“It’s a sensible thing for the UK to consider, particularly post-Brexit,” says Sallabank. “[The government is] trying to encourage companies to come to the UK, for big businesses to see the UK as a desirable place to be. Anything to facilitate business moving from outside the UK into the UK is a good move.”
According to a report by New Financial, Brexit has cost London £1trn in assets and 7,400 jobs as firms in the banking and finance industry relocated parts of the business or set up new entities in the EU.
Many other countries already allow re-domiciliation including Australia, Belgium, Canada and Luxemburg. However, not all countries also allow outward domiciliation such as Singapore, Ireland, and more recently Hong Kong.
If the UK followed in other jurisdictions’ footsteps of not permitting outward re-domiciliation it could impact the popularity of the regime, adds Sallabank.
The financial benefits of re-domiciling
Corporates often look to re-domicile based on the needs of the business including safety satisfactions and shareholder pressure.
“Often being a UK incorporated company can make it easier to raise finance because the UK corporate regime is widely respected as being well-established,” says Sallabank.
One of the main reasons that corporates often explore re-domiciling is around the taxation benefits.
However, despite a heavily detailed consultation document, further clarity on taxation for new re-domiciled companies is needed, as well as more details around the conditions that companies will need to meet to re-domicile to the UK, says Sallabank.
For example, the consultation was unclear on whether businesses would be able to transfer assets into the UK at market value and the residence criteria companies would be subject to.
It was also unclear whether a company choosing to re-domicile would need to have a large physical presence in the UK and move its central management operations, or whether it would be allowed to re-domicile and carry on as before in its original jurisdiction.