Corporate Locations: Wish You Were Here?
Where should it be this year? Bermuda? Switzerland? Or stay close to home in Ireland?
These are not choices for taking the family on holiday but the options list for chairmen considering taking their companies offshore. Latest to decide is the European HQ of McDonald's, which has opted to swap London fog for the bracing Swiss air.
In a global economy the corporate base is now a matter for decision rather than default. A company could source materials in Africa, assemble parts in Asia, sell its goods in Europe and be owned by US funds with shares listed in London or any other exchange. It has no need to be registered in the place the business was founded a century ago.
Companies can take a pick-and-mix attitude to location, choosing the legal, fiscal and regulatory regime that suits best.
When Experian, the credit agency, was demerged from the UK's GUS group, it chose to incorporate on Jersey, pay Irish taxes, present its accounts in US dollars but keep London for its FTSE-100 listing. Russia's main grocery group, Pyaterochka Holding (now X5 Retail Group) chose a Dutch registration, London's stockmarket and presents accounts in dollars under US accounting standards.
Simply threatening to take their corporate base and their taxes abroad can cause governments to change policy. The UK shipping industry won concessions by suggesting putting a flag of convenience on its fleet and the gambling industry had its taxes slashed when it opened offshore offices to attract British punters.
UK chancellor Alistair Darling was forced to change his tax rules again this year after an exodus of companies emigrating to save money. Charter, Henderson, Shire and WPP were part of growing phalanx of UK companies choosing new countries of incorporation and tax domiciles while leaving management and operations in the UK. United Business Media and the Regus offices provider followed an increasingly well worn route.
But if the first law of taxation is that when one loophole is closed another opens, the second law must be that ending one anomaly creates another. Rules that took effect in July allow dividends from real overseas trading companies to be paid to UK parents without being doubly taxed. But intellectual property rights fall outside that concession and it is those that McDonald's blames for its move to Geneva.
Profits from patents, copyrights and trademarks are still liable to double taxation and the fast food business,which operates through licensed franchisees, remains caught.
Informa, the publisher of Lloyd's List, has already reregistered on Jersey and taken its tax affairs to Switzerland for the same reason.
The possibility of moving should therefore remain on corporate agendas. But while competition between countries on tax regimes or rates to attract businesses from abroad is good, we should be wary of those that choose their base because of lax regulation or to avoid the authorities such as the Takeover Panel.
Beware businesses that join the race to the bottom when choosing locations. McDonald's swapped one recognized business base for another. It has not decamped to one of those islands that you cannot find on the atlas.