Ireland is mopping up top UK based companies due to low tax rate apparently

darkman2

In recent months there seems to have been a surge to Ireland from British based companies but they not employing many people here....if any....however the British seem increasingly concerned about just how much a virtual tax haven for large corporations in a relatively small, highly educated, driven country can damage them. Not the first companies and they wont be the last. Channel 4 news done a piece on this last week I think.


telegraph.co.uk

Irish Development Agency targets UK firms over tax regime
Last Updated: 1:51am BST 05/05/2008



Ireland is going all out to woo companies from the UK, disgruntled by the PM's tax regime. Dominic White reports

The letter came on green headed paper. And it hopped out at Julie Moran from the mountain of junk post in her in-tray.


Alistair Darling is under tremendous pressure to
prevent the trickle turning into a deluge


Moran, the finance director of online marketing company Latitude, had been blitzed with useless mail ever since the fast-growing Lancashire business started winning industry awards in 2006. But here, at last, seemed to be an offer her £40m turnover company couldn't refuse.

Did Moran know, asked the letter from Fiona McLaughlin of The Irish Development Agency (IDA), that Latitude could get a 12.5 per cent corporation tax rate if she moved its HQ to Eire?

"Any business person with half a commercial brain who sees that thinks, 'I have to investigate further'," says Moran who, at the time was paying Britain's 30 per cent headline rate, now 28 per cent.

Exodus double-whammy
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Weeks later she was on a plane bound for Dublin and a two-day tour at the IDA's expense. She would be chauffeured, wined, dined, and dangled various incentives to redomicile the company across the Irish Sea.

"The IDA were deeply impressive," she says. "They put a lot of investment into the trip and they were really detailed - far better than any [regional development agency] I've ever seen in the UK."

Moran's story - more of which later - gives a glimpse into the seductive forces that Chancellor Alistair Darling is up against as he seeks to stop disaffected UK businesses fleeing his increasingly punitive fiscal regime.

Last week WPP, GlaxoSmithKline, International Power and AstraZeneca all hinted that they could follow Shire and United Business Media's controversial plans to switch tax domicile to Ireland, or another low-tax economy.

Darling is under tremendous pressure to prevent the trickle turning into a deluge. By way of reaction, he has announced a working group of business leaders to discuss the reform of business tax laws. It's purpose remains fuzzy but there is no doubt that top of its agenda will be HM Treasury's proposed changes to the way the UK taxes multinationals' foreign profits.

Some tax experts are puzzled by Shire and UBM's plans, coming as they do before Treasury's launch of fresh consultation on these proposals. But both companies appear to have been sufficiently alarmed by the noises emanating from Darling's department and HM Revenue & Customs to take pre-emptive action.

"The consultation in the summer will be a huge thing for UK multinationals whether it is draconian or not," says Ralph Cunningham, managing editor of International Tax Review. "Shire and UBM just think it's going to be bad."

At the heart of Shire and UBM's concern are various complex moves by the taxman to withdraw valuable exemptions to the taxation on profits they make abroad. Both companies have operations across the globe and such changes threaten to hit them where it hurts: the bottom line.

With profits under threat, institutional investors are increasingly keen to know what action the companies they invest in are taking to minimise their tax burdens. William Claxton-Smith, head of corporate governance at Insight, says he is voting in favour of Shire's proposed move. "We believe it is the right thing for them to do, and we believe it is a legitimate role of a company's board to keep tax down."

The National Association of Pension Funds, which represents some of the City's biggest investors, also says it would urge companies to consider redomiciling, but it warns against any "me-too" moves.

"Institutional investors would expect companies to undertake an appraisal of the pros and cons of moving domiciles," says David Paterson, head of corporate governance at the NAPF. "The key issue is whether it would benefit a company and its shareholders over the medium to long term, and is not a knee-jerk reaction."

Some FTSE100 companies have made clear they are not going to jump on the bandwagon. "We are staying put in Edinburgh," HBOS chief executive Andy Hornby told The Sunday Telegraph. Similar sounds have emerged from the mouthpieces of Royal Bank of Scotland, British Airways, BP and the London Stock Exchange.

Tax experts say that for any of these distinctly British brands a move to Ireland would be politically unpalatable: there would be potential reputational damage to consider, as well as weakened lobbying rights.

But for many other companies, the question is perhaps less "why redomicile", as "why not redomicile?"

Joe Diggins, director of Mercury Tax Group in Ireland, says his firm has experienced a flurry of inquiries of late, "predominantly from small service companies and hedge funds, which don't have to be physically located in a particular location." They are precisely the type of "knowledge economy" businesses that Gordon Brown so champions, he adds.

Unless urgent action is taken, the floodgates could open, warns Bill Dodwell, head of tax policy at Deloitte: "The fact is people are already voting with their feet and saying 'we don't think you've got a competitive regime'."

Both experts point out that moving headquarters would involve a monumental effort for some of the biggest companies - such as WPP or AstraZeneca - because they have such sizeable infrastructure in the UK.

And simply jetting directors over to have board meetings in Ireland may not be enough to convince the UK taxman. Similarly, the Irish finance minister Brian Cowen stressed this week that the country would not encourage "brass plate" operations, and wanted to see "real substance in investment in Ireland" by those seeking to take advantage of its benign fiscal environment.

Large companies may look to other jurisdictions such as Switzerland of course. But for smaller, more mobile companies, Ireland is proving increasingly attractive.

Not quite attractive enough yet, however, for Julie Moran and Latitude.

After lengthy consideration, she and Latitude's board have decided to stay put in Warrington for now. "The whole experience was completely positive," she says. "But a company does have to come back and completely analyse all the facts."

The Irish government had effectively offered to pay up to 60 per cent of Latitude's employment costs for a period if it based itself in a part of the country badly in need of investment.

But Moran found that property prices in line with those outside the M25 and Ireland's higher rates of individual income tax would have forced her to offer Latitude's 100 staff higher salaries just to take home the same amount.

Nevertheless, the company has since been taken over by private equity firm Vitruvian Partners. Might it again consider moving the company at some stage?

"Absolutely," she says.

So its not all bad news apparently......but expect increasing noises from Britain and Europe about the corporate tax regime here in the coming months. Is the Lisbon treaty the tool they need to finally put an end to the troublesome Irish nicking 'their' jobs?

http://news.bbc.co.uk/2/hi/business/7349819.stm

http://www.iht.com/articles/reuters/2008/04/27/business/OUKBS-UK-UBM.php

The snowball has started rolling.......

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/30/cntax130.xml

I think its time we asked ourselves some hard questions about the image we get from being labelled a 'tax haven'

Kovik

Europe won't legislate in terms of taxation of this ilk. It hopes to legislate government intervention in specific industries (agriculture, fisheries etc) and import/export tariffs. Legislating income tax, corporation tax, VAT, capital gains tax etc. would constitute a massive restructuring of most economies of Europe, bringing moderate-to-low tax nations like ours into a compromise with very high tax economies of scandinavia.

We're not a "tax haven." That's real alarmist language. It's simply a case that the British economy is being handled incredibly poorly right now while this country is being managed rather well and has managed to, for the most part, evade the credit crunch. Trading in euros is also a whole lot cheaper.

Fratton Fred

Kovik wrote: »

Europe won't legislate in terms of taxation of this ilk. It hopes to legislate government intervention in specific industries (agriculture, fisheries etc) and import/export tariffs. Legislating income tax, corporation tax, VAT, capital gains tax etc. would constitute a massive restructuring of most economies of Europe, bringing moderate-to-low tax nations like ours into a compromise with very high tax economies of scandinavia.

We're not a "tax haven." That's real alarmist language. It's simply a case that the British economy is being handled incredibly poorly right now while this country is being managed rather well and has managed to, for the most part, evade the credit crunch. Trading in euros is also a whole lot cheaper.

Europe is pissed off at Ireland because it has a very low corporate tax rate, yet it still has it's hand out looking for money. Ireland has become rich on EU money and the rest of the EU are looking for Ireland to manage it's finances better and start giving something back. In reality, it can't because the Irish economy has been handled badly, the EU billons have been squandered and the walth is based purely on house prices, which are dropping like a stone.

I remember Vodafone making noises about moving to Ireland 6 or 7 years ago, basically of the 10,000 or so UK employees, about 20 would need to move to Ireland for it to be considered an Irish company and pay Irish corporate tax, hardly great news for Irish workers. Vodafone stopped making these noises when blind eyes were turned to loopholes they were exploiting in the UK.

This has nothing to do with credit crunches, it's about big business protecting their money, nothing else.

leninbenjamin

Fratton Fred wrote: »

In reality, it can't because the Irish economy has been handled badly, the EU billons have been squandered and the walth is based purely on house prices, which are dropping like a stone.

while I agree the economy has been handled poorly, the property situation was almost completely out of the governments hands. it's cause is the extremely negative inflation policy of the ECB and strict monetary policy in general, so it's largely Europes fault that our economy badly overheated, not ours.

damnyanks

In the recent budget labour threw in a lot of new tax laws which appeared to piss a lot of corporates off. Since the annoucement of that budget a lot of companies have planned relocation to either Ireland or Switzerland.

Yahoo comes to mind - they told everyone they're moving to Geneva I think it was. Come with them or lose your job - tada

silverharp

leninbenjamin wrote: »

while I agree the economy has been handled poorly, the property situation was almost completely out of the governments hands. it's cause is the extremely negative inflation policy of the ECB and strict monetary policy in general, so it's largely Europes fault that our economy badly overheated, not ours.

your argument is back to front, one of the reasons that created the boom was low euro interest rates that were too low for ireland in the 90's. All bubbles crack at some stage, it doesn't matter now what euro rates are, also the market sets the rates at which people borrow, not central banks which only control rates at the short end of the curve.

ninty9er

Fratton Fred wrote: »

Europe is pissed off at Ireland because it has a very low corporate tax rate, yet it still has it's hand out looking for money.

Becasue if CAP Ireland is still a net benefactor 7 years after we were due to become net contributers. My own personal opinion is that if tax rates are fu<ked with we should go the way of Switzerland, abdicate the EU and join the EEA.

Kovik

Fratton Fred wrote: »

Europe is pissed off at Ireland because it has a very low corporate tax rate, yet it still has it's hand out looking for money.

It really isn't. Perhaps in the very ninetees, but currently EU money is given to this country primarily for development of infrastructure in about the same ammount as any other country in the EU. Ireland only occasionally appeals to developmental funds as intended.

Ireland has become rich on EU money and the rest of the EU are looking for Ireland to manage it's finances better and start giving something back. In reality, it can't because the Irish economy has been handled badly, the EU billons have been squandered and the walth is based purely on house prices, which are dropping like a stone.

The economy has been handled in a dead-on average manner for a low tax economy. Wealth is not based purely on house prices and I don't understand how it possibly would be. The housing bubble bursting has had a very slight impact on government finances and the overall economy. GDP per capita in this country is so high for various other reasons. Spending in Ireland tends to be as conservative as its tax policies and in general finances are handled very prudently. The only area of the economy of any real concern is the balance of trade, but realistically this is due to the debt we accrued in the 80s and early 90s on our current account. Compared to other EU countries in recent years (notably France, Italy, Germany, Belgium) government spending has been very professional and the economy has remained extremely healthy. The EU is more than satisfied with Irish fiscal policy, though the ECB continues to issue directives on every economic system in the union. It's not uncommon and in general our level of compliance is very high. As I mentioned, we are on one end of an extreme in relation to taxation in this country, with all ends of the spectrum pretty much accepted. Ireland is hardly a tax haven and companies only consider taxation as a small component when deciding to relocate.

This has nothing to do with credit crunches, it's about big business protecting their money, nothing else.

The credit crunch not affecting us significantly even after the housing bubble is an example of this country's substantial economic health. If a company feels it's cost effective to relocate to an economy with higher inflation and a cost of living index that would be unfavourable to a relocating company then their indigenous economic situation must be in dire straits. UK companies occasionally find it cheaper here due to the poor economic situation over there, the slightly lower degree of taxation here and the ability to trade exclusively in euros. It's a remark on the comparative health of this economy.

I'm actually quite surprised that people feel the economy has been mishandled so badly on these boards. Can anyone present me with any figures to that effect?

SkepticOne

Unfortunately when read about Ireland being the second or third wealthiest countries in the world a huge amount of this 'wealth' (about 60 to 70 percent) is based on property prices. Property prices are nothing but a reflection of how much the banks are willing to lend us and how willing we are to get into debt. The country as a whole can be generating no income but provided we can be persuaded to believe that our houses are worth a fortune and the banks believe that houses represent good security, we are suddenly vastly wealthy.

The reason our economy has been so very badly managed by by the Government is that, in the absence of monetary control, the Government failed to use fiscal measures to curb the overheating economy and prevent the property asset bubble from forming despite warnings from international bodies. True we stuck within the strict rules of the EU of not running a large budget deficit but this was not hard when the building industry was in overdrive and vast amounts of stamp duty and vat were being paid on overpriced houses snapped up by speculators. We needed to go beyond what the EU mandated to cool the overheating economy but did not.

There was a brief attempt to burst the bubble in 2000 by implementing the Bacon recommendation but these measures were quickly reversed when they were found to be actually working and prices subsequently resumed their rise after the reversal.

SkepticOne

Links for Kovik

http://www.bankofireland.com/press_room/latest_releases/2006/press_releases_news_154728_11.html

http://www.ireland.com/newspaper/breaking/2008/0212/breaking31.htm

http://www.forbes.com/2007/07/31/ireland-wealth-housing-markets-equity-cx_po_0731markets09.html

KERPAL

Finally, some positive news. Sounds good anyway, although Net Factor Income from abroad will suffer.

partholon

wouldnt the UK like to do somthing to stop this?

maybe something like tax harmonisation..........

The_Minister

partholon wrote: »

wouldnt the UK like to do somthing to stop this?

maybe something like tax harmonisation..........

No. They are actually our allies in our fight against tax harmonisation.

Just look at London's financial sector.

Chakar

Gordon Brown said during the Northern Ireland investment conference on Thursday that Britain is firmly opposed to tax harmonisation and will fight against its imposition in any shape or form. That was shown on RTE News as part of its coverage of the conference.

ballooba

I don't see the low corporate tax rate as sustainable. It no longer provides the type of employment it used to. The EU is not going to tolerate us acting as a tax haven.

Fratton Fred

ballooba wrote: »

I don't see the low corporate tax rate as sustainable. It no longer provides the type of employment it used to. The EU is not going to tolerate us acting as a tax haven.

Ireland's problem is that despite the low tax rate, it is a very expensive country to operate from. That is what the Government needs to concentrate on but they don't appear to recognise that. I think this is why Bertie jumped ship, becuase he knew there were tough times ahead.

John_C

I read in the papers over the weekend that Guinnesses might be moving its offices from London to Dublin. Well done to whoever arranged that if it's true.

lostexpectation

well diageo the huge parent company