Redomiciliation is one of the big concerns that the Tax Justice Network drew attention to when submitting evidence to the US Senate on Jersey last week. It creates the concept of 'corporate flight'.
I explain just why this is an issue in this video.
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Dear Richard,
Just a quick comment on the tv. It’s great, please keep them coming. I am teaching a course on Offshore at Sussex this year, and am sure these will be very useful
best
Duncan
I came accross your website and in particular your interesting comments on redomicilation. Just a quick question, can one redomicile a BVI company back to the UK, and if so is the process complex?
any comments you may have would be most appreciated.
Thank you ❓
Redomiciliation in and out of the Uk is possible – by private Act of Parliament.
Not for the faeint hearted as a result!
Can you explain how your proposal to prevent redomiciliation (in both meanings of the word) can be compatible with Community law (specifically Arts 43 and 48). Not least the obiter comments in the ECJ case of Cartesio at Para 112 that state: “[…]national legislation […] cannot, in particular, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so.”
In short, Exit Taxes of the sort imposed in the Daily Mail case are no longer valid under EU law.
Secondly, how does your proposal tally with the introduction of the European SE, and the freedom for the SE to move around EU jurisdictions that, of course, have varying tax rates?
Thanks, Stephen
Stephen
The rules used by the EU were written by the same people who no doubt wrote of the rules on redomiciliation for the tax havens. Let’s call them PricewaterhouseCoopers and their ilk for convenience.
those rules are very obviously now wholly inappropriate. The rules on capital free movement are quite clearly destroying the world’s financial markets.
So we will have to rewrite the EU’s rules at the same time as banning redomiciliation offshore. so what? do you really see people objecting?
Richard
I’m sorry, but that is a facile response. A conspiracy theory that “PwC and their ilk” have promulgated! ‘The EU’s rules’ you are referring to are the four fundamental freedoms of the EU: the free movement of goods, services, people and capital. Are you suggesting, in UKIP style, that we unravel 50 years of EU integration? If so, you can save the argument for a UKIP etc website!
Moving back to the real discussion on tax, the more interesting point here is whether you should apply differing treatments to three potential categories of jurisdiction: (1) movements within the EU; (2) Movements outside the EU to non-tax havens and (3) Movements to countries outside the EU that are tax havens.
A simple ban on redomiciliations is not only contrary to EU law but it would have little benefit to the tax authorities due to the broadly similar corporate tax rates (at least compared to tax havens) within the EU. Most tax authorities already have lists of countries they consider ‘low tax’ countries which are used when applying (or disapplying), amongst others, the rules on withholding tax within double tax treaties when the ultimate beneficiary is in a designated ‘low tax’ jurisdiction. These kind of techniques to protect taxation in developed economies work well, without fettering the flexibility of companies to choose an appropriate jurisdiction.
Secondly, there are plenty of good reasons to redomicile a company other than purely tax. Redomiciliation has, of course, two meanings: in corporate law and in tax law. Companies that hold single assets, for example very large ships, are frequently redomiciled to a new jurisdiction when the flag of the vessel changes (as this is often a requirement for the reflagging) but the tax treatment does not change as the ultimate beneficial owners of any profits will be located in jurisdictions that are taxed accordingly. Furthermore, if you look at the handful of cases in the UK of redomiciliations of UK companies overseas (passed on a case-by-case basis by way of a private bill through parliament) you’ll see there are many more reasons for such a redomiciliation than simply taxation. Good reasons include: to list on a particular stock exchange, move to a market where there is a greater potential shareholder base (e.g. see Newscorp’s move to Delaware), or to work in a different regulatory environment (for example a better respected jurisdiction with greater regulation).
I am not arguing against your motives – tax havens do need dealing with – but your simplistic proposal reminds me of the proverbial parent who, in an effort to protect their children, never lets them out of the house. It will work, but the consequences are far from desirable.
Stephen
That was not a facile response: I suspect it was quite close to the mark.
I note what you say: from the moment you talk about all tax systems in Europe being broadly similar onwards it is quite clear that either a) you do not know what you are talking about or b) you have an agenda quite different from my own.
I can, candidly, see no reason for redomiciliation at all, and see no reason why a country should allow it.
That’s not simplistic. That’s fact.
Once it can be used for so called legitimate purposes it will be used for illegitimate ones.
It’s not worth the risk in this case. If people wish to redomcile I am happy for them to do so: let them pay tax on the way.
Richard
these may be the fundamental freedoms of the EU, but is it worth asking what must be the case about the world – and the EU – so that fundamental freedoms are applied to capital like people? … that probably goes back to the legal constitution of the corporation, and while this may be now a well sedimented institution, under present circumstances it may well require a fundamental re-think of ‘fundamentals’…
EU countries are broadly similar because they don’t offer tax rates that differ by *that* much when compared to, say, the UK and BVI or the Caymans. Unless you are going to start calling Germany or Ireland a tax haven, then my point is sound. The EU is not full of tax havens, and where there are discrepancies, the opening up of markets will reduce those differences even further. Comparing just the corporate tax rates is also far too simplistic – if that was the issue everyone would have set up shop in Bulgaria the moment they joined the EU…
My point is that if you wish to prevent the use of tax havens (Caymans, BVI et al) then you do that, but you don’t put up barriers to trade within western economies that have broadly similar systems.
You say “I see no reason for redomiciliation at all […] that’s not simplistic. That’s fact” (It isn’t a fact, it is actually your opinion, but I digress). But then you contradict yourself and say “If people wish to redomicile, then I am happy for them to do so: let them pay tax on the way.”
I’ll deal with the first. As for seeing no point in redomiciliation (despite my list of examples), I’ll give you an even simpler one. Would you be happy if a company incorporated and tax resident in Jersey chose to make a corporate redomiciliation (change it’s place of incorporation) to the UK and become UK tax resident (tax redomicile) in order to list on the LSE? They’d go from paying no tax in the UK to paying more tax as a result… follow the example? There are valid reasons why companies will choose to move to a higher tax jurisdiction – this isn’t just about companies moving to lower tax jurisdictions. Why do you oppose that?
As for a company redomiciling to a jurisdiction with a broadly similar tax rate, for example from the UK to Germany, how would you tax such an exit? And to what end if the purpose of the move is clearly not tax motivated (a test that HMRC already use in other contexts).
I’m genuinely interested in what your solution is to this. I am keen to see tax paid properly, and have no agenda other than trying to find a genuine solutions to this – which is how I came upon your website – but I don’t see your solution, just a simplistic call for a ban on redomiciliation. If you could map out how it would work (without any more references to conspiracy theories – however true they might be) I’d be very interested to hear.
Stephen
1) I do argue that Ireland is a tax haven. Frankfurt might be too. The City of London is.
2) To argue that European states aren’t competing on tax is ludicrous – see the Guardian today
3) Redomicilation is a specific process. To redomicile is to move location. One does not involve change of legal form. The other does. There is no contradiction in opposing one and allowing the other.
4) I have now dealt with your Jersey example, by default.
5) Of course moving jurisdiction should be allowed – but let me take a simple example from the UK. A company that means the UK must settle its liabilities when doing so. This does, for example, mean that tax relief that it has been given purely for the reason of being a member of the UK group, must be settled. Assets transferred out of the UK must be charged at arms length prices as would be the case in any other international transaction. Capital gains should be charged on those assets transferred. These aren’t exit charges per se, they are simple recognition that wehn assets across international boundaries there is a payment to make.
But let me make it entirely clear why I oppose redomiciliation and am relaxed about international relocation so long as tax is paid on the way. first I do not like leakage out of national tax nets. but much more importantly, the process of redomiciliation is undoubtedly used by those with less than benevolent intent to flee ahead of enquiries from the main. International regulators tell me so. Those pursuing debt tell me so. those doing tax enquiries tell me so.
that is why I oppose the process. It facilitates corruption that has very marginal benefits for any other purpose or stop the trade off is not worth making.
Richard
Apologies if there are any minor errors in this – it was dictated
straight to the computer