The FT has published an analysis this morning of the trend for companies to relocate their headquarters. Its conclusion is:

A view sometimes aired in government is that large countries such as the UK should be more sanguine about losing the headquarters of big domestic businesses and focus on attracting "real business" into the country, regardless of who owns or controls it. Genuine investment goes to countries where it can be deployed. Tax is far less important in these considerations than proximity to markets, infrastructure and the availability of skilled staff.

Yet if countries such as Britain become reconciled to losing headquarters to lower-tax rivals, they will pay a price. As well as shedding well-paid jobs and advisory work, they risk a decline in influence and investment as decision-makers go elsewhere. When world-leading businesses uproot themselves, more is at stake than national pride.

I'm afraid that this misses the point. The facts are:

1) No major financial centre significantly rivals the UK on tax rates;

2) People do not relocate to low tax states; it's transactions that relocate to these places;

3) The political backlash against this trend, seen in the US and only beginning here will be significant, and will be effective.

4) Most low tax states do not have the capacity or the people to service those claiming to 'relocate' to them. They most certainly do not the advisors, especially if the quality of those I have met from some such locations is indicative of what is challenging London;

5) The only reason why this debate is happening in the UK is that UK business knows Gordon Brown has an irrational desire to maintain the UK as a tax haven, and to support its satellite tax havens. I explained why here.

The truth is that in practice there is no attempt to really relocate going on. What business is seeking to do is to float above the geographic constraint that locating transactions in a place imposes upon it, pretending that it is 'global' and therefore has little concern for the 'local' dimension of where it might be considered to be, and how that gives rise to regulatory consequence.

But this is a pretence. It ignores the fact that there is but one world, that business is always staffed by people and is always undertaken for human benefit, and that we are always, ultimately local. Even the mega-rich can be located, and when citizens of places like the USA have obligations to a place irrespective of location (of which I approve).

The real analysis of what is happening is this. Until the 1980s world taxation was largely source based (i.e tax was charged in the first instance where profits arose), with treaties to ensure that double taxation did not take place in the location where a person was resident. But with the collapse of empires, whether real or of influence, and the rise of global capital (actually, and almost inevitably ultimately located in either London or New York) the emphasis in taxation shifted and became residence based. This mean that the right to tax at source has been eliminated in many cases.For example, tax withholdings on many intangible sources of income have been virtually eliminated as if they were a contagious disease. Treaties are now designed to ensure that tax is charged only in the place of residence. That place of residence is becoming increasingly esoteric for some companies as they seek to locate in more and more obscure places (and St Helier and Dublin both qualify as such). But this trend can only go so far until it becomes very apparent that there is a disconnect between real and claimed residence. This is what is now happening in the tussle taking place over the future direction of UK corporate taxation of foreign income. When that point is reached the life expectancy of the model about which the argument is taking place is shown to be limited and what is really heralded is the dawn of a new model.

That model is one that will have to embrace corporation's claim to be global but which allocates its activity to the local domain in which people live. The reconciliation is, of course, provided by country-by-country accounting and unitary taxation regulated (inevitably) by international agreement (which are essential in taxation) to ensure that the rate of leakage of taxation revenue is as low as possible.

The short term story is of relocation. The long term analysis is that this is a death-throw of an outdated system that is both over due for replacement, and which will, inevitably be replaced.