An increasing number of UK companies are moving their tax bases overseas, we ask why and look at whether this trend is set to continue.
The past year has seen the Government face several crises relating to taxation, the latest has been the creeping exodus of several multinationals to countries with lower tax rates than the UK.
Corporations that have already made the move include Hiscox, the insurance group, Electronic Arts, the computer games company with the most high profile tax exiles being Shire, the pharmaceutical group and most recently United Business Media (UBM).
As speculation about more companies rumoured to be potential future tax exiles continues the question of what is to blame has become an important economic issue. Several high profile companies have been named as considering basing their headquarters in countries with lower tax rates including the pharmaceutical giant GlaxoSmithKlein and the Lloyd's backer, Brit Insurance.
The UK's corporation tax rate is set at 28%, the lowest in the G7 but much higher than the Irish rate of 12.5%. The UK's rate was lowered by Labour after they first came into power but has gradually lost competitiveness as other European countries have lowered their rates over time.
The shifting of a company's tax base to another country seldom affects their level of operations in the UK so employees are rarely affected. Instead it is the tax receipts of the Treasury that absorb the impact.
Last summer the Treasury announced plans to launch a review of the current excise system, focusing on the taxation of the overseas profits of UK based companies. The UK tax system has long been criticised for its complexity and the aim of the review was to produce a simplified 'revenue-neutral'. However, the problem for business is that this has created uncertainty over what kind of policy the reforms will produce.
Richard Lambert, the Director-General of the Confederation of British Industry (CBI) has said, "Firms are seriously concerned about the high level and rising complexity of taxation in the UK and are increasingly prepared to vote with their feet. A more complex tax system creates uncertainty, and this has led to charges of unfair tax 'avoidance' made against firms even when planning arrangements are legitimate and purely commercial."
The government has recently attempted to sooth industry fears about the proposed taxation reforms. Last month Alistair Darling made a speech to the CBI annual dinner and reassured the company heads there that "we want to deliver a revenue neutral package that would enhance the competitiveness of our tax system, while protecting existing UK tax revenues."
It remains to be seen whether the exodus of companies to tax havens like Ireland will remain a trickle or if it will develop into a flood.
