The 22 tax exiles

LAST WEEK’S Last week’s news about advertising giant WPP ending its self-imposed tax exile to return to Britain got me thinking about the ‘exodus’ of companies who fled these shores for much less punishing tax regimes.

WPP and Shire Pharmaceuticals illustrated this rush to get away from the far too costly, overly burdensome, dramatically uncertain UK tax regime when they quit to register for tax purposes in Ireland.

Once their exits were revealed there followed dire warning that there would be a rush of companies to the first class departure lounges as they turned their backs on Britain in disgust and went in search of tax regimes that were a little less… taxing.

WPP’s return, revealed the day after the Budget, was clearly arranged to signal that chancellor George Osborne was getting the tax system back into good order. The impending cut in corporation tax plus the forthcoming reforms to the controlled foreign companies regime must have made the UK look much more attractive.

So, I wondered how many companies had done like WPP and left. The press, for the past five years and more, has been (FULL OF) criticism of the tax regime and threats about the number of companies that would leave.

Helpfully, HMRC has done some research which was revealed by exchequer secretary David Gauke in response to a written parliamentary question on 9 March.

In all, the taxman estimates that 22 companies relocated for tax purposes between 2007 and this year. That was just one in 2007-08, 10 in 2008-09, seven in 2009-10 and so far in the current year four companies have packed their bags.

Gauke said in his answer: “Businesses may move their headquarters for a combination of reasons, including tax, and can restructure in different ways with different tax consequences, depending on the facts in each case. One form of restructuring involves businesses formerly headed by a UK tax resident company creating a new parent company that is claimed to be tax resident elsewhere.”

He added that businesses are not required to inform HMRC of changes to their status, but research produced the above numbers.

Now, there is clearly a margin of error in these numbers, or at least A possibility of error. But given the host of companies registered in the UK, 22 does not seem many.

We should set that in context. Of around 2.5 million VAT registered businesses in the UK, there are almost 12,000 companies with 250 employees or more. There are another 25,000 with 100-250 workers. Making a fairly crude assumption that most of these could manage a move abroad (I know, it’s a pretty big assumption) 22 still doesn’t seem very many.

So could 22 be significant in any way? Well, if they were the 22 largest companies in the country, that would be significant. But they’re not.

So what’s my point? The point is that going on HMRC evidence, there was no great rush to get out of the UK and its tax system. The majority of companies stayed here for one reason or another and did not find the tax regime the determining factor in where their company should be registered.

Other issues are at play and the companies that did leave had very specific reasons that were slightly divorced from general criticism of the UK’s competitiveness as a tax environment.

Of course, the figures, even if 100% accurate do not reflect the number of companies that chose not to register here. But that really is unknowable. Unknowables are never a good basis for policy on their own though they may form part of a broader judgement.

Lastly, if the figures are right and few companies did leave for tax reasons, the significance of WPP’s return is really much more about PR for the UK tax regime than substance. We could therefore speculate that the company’s return is much more about changes in their own specific tax situation than it is about general changes to the tax environment.