Late last year, the Government announced plans to introduce a corporate re-domiciliation regime in the UK, allowing foreign companies to re-domicile and therefore making it easier to relocate to the UK.
A joint HM Treasury, HMRC and BEIS public consultation on the issue finished last week.
AAT responded to the consultation stating that it supports the principle of the UK aligning its re-domiciliation approach with its international competitors in order to attract more companies to invest in the UK (and pay UK taxes) providing opportunities for abuse are kept to an absolute minimum and that it is implemented in a way that maximises opportunities for the UK.
Given so many other countries already allow for re-domiciliation, aligning our approach with international peers is likely to enhance the UK’s attractiveness as a destination to locate business, bring increased investment and skilled jobs into the UK, and as the consultation noted, increase demand for professional services within the UK.
AAT notes that the Government is not currently proposing to allow entities to redomicile from the UK into a jurisdiction outside the UK and can understand the rationale for this given the policy proposal is aimed at attracting businesses to the UK rather than making it easier for companies to leave.
However, given a successful re-domiciliation regime requires mutual recognition and compatibility with other jurisdictions i.e. the origin jurisdiction must accept a migration to the UK, it is highly likely that other countries would require reciprocal arrangements. Whilst the Government is correct to highlight the examples of Singapore, Ireland and soon Hong Kong, as not permitting outward re-domiciliation, these countries are the exception rather than the norm. As a result, AAT believes that the Government must give serious consideration to simultaneously permitting outward as well as inward re-domiciliation.
AAT notes that the Government is not minded to prescribe a minimum turnover/size of companies that can re-domicile. Unfortunately no rationale or indeed any information is provided as to why. It may be that imposing such criteria could reduce the potential for tax or other forms of financial abuse as well as reducing any administrative burden on Companies House, HMRC and the Treasury by avoiding the re-domiciliation of very small companies unlikely to bring any financial benefit to UK plc.
In Singapore for example, the re-domiciling company must have either a minimum of 50 employees or a turnover in excess of S$10m.
Clarity around tax is essential. Furthermore, AAT believes that any re-domiciliation must lead to the entity being considered as UK resident for tax purposes as this is the simplest, clearest and fairest approach. The alternative, of only treating re-domiciled entities as UK resident if the central management and control is in the UK, will in some cases lead to considerable complexity, uncertainty, costly legal arguments and increases the potential for avoidance. AAT agrees with the Government that it is important that the UK attracts additional investment in the UK. However, it must be on the basis that such businesses pay a fair share of tax.
Potential for abuse
The Government has proposed a track record requirement to prevent a business from simply establishing itself as a legal entity in an overseas jurisdiction before immediately redomiciling in the UK. In practice this is no more than requiring the company to pass its “first financial period end”. Whilst recognising the need to attract all types of company, including those in their initial stages of growth, this appears to be unduly generous. Three years would appear to strike a better balance between attracting companies at an early stage and avoiding those seeking to exploit the system. Three years is commonly accepted in other areas of UK financial affairs. For example, a track record of three years is usually required before the self-employed can obtain a mortgage and a track record of three years is required before a company can list on the stock market in the UK.
On the issue of loss importation, whereby non-UK resident companies become UK resident in order to set foreign losses against the UK profits of other group companies (under the UK’s group relief provisions), this is a material risk that AAT believes requires additional protections. It is also worth highlighting that whilst some companies may not initially re-domicile for this purpose, they may seek to take advantage of the UK’s group relief provisions in years to come should their financial position in the UK and other countries make doing so more attractive. It is therefore essential that Government addresses this issue before finalising its plans to allow corporate re-domiciliation.
Phil Hall is AAT's Head of Public Affairs and Public Policy.