BAT Threatens To Leave The UK If Brown Maintains Tax Attack

Jason Gorringe, Tax-News.com, London

02 March 2001

The public row between UK business and the Chancellor, Gordon Brown, over the taxation of overseas profits, which has been simmering away since last year's budget caused an explosion from Vodaphone's Chris Gent, exploded into the limelight again yesterday when tobacco giant BAT threatened to leave the UK if next week's budget doesn't backtrack on last year's measures.

Speaking as the cigarette maker unveiled an 11 per cent rise in pre-tax profits for the year 2000, BAT's chairman, Martin Broughton, said: "We do look at whether this is the right place to be, and at what stock market we should be on."

Mr Broughton said the company was considering Holland as a new base, but the threat is probably just a piece of bluff, since no large FTSE 100 company could seriously think about moving away from the LSE, given the dominance of the institutions among shareholders. A considerable proportion of institutional share-buying is tied to the index, and a move would threaten much of this money, with catastrophic results for the share price while new shareholders are wooed.

Still, the incident raises some major long-term issues. Last year's changes to 'offshore mixing' (the ability of companies to offset lowly-taxed income streams against highly-taxed ones) and the CFC (Controlled Foreign Corporation) rules, which taken together seriously dented the abilitity of multinational companies to mitigate UK tax, have clearly worsened the UK's corporate tax regime.

It is all very well for the Chancellor to say that he is merely 'reclaiming lost tax': the fact is that despite the OECD's misguided efforts to restrict tax competition, it is alive and well, and a country which doesn't offer a low tax environment to global companies will eventually lose them and the jobs they bring with them.

Gordon 'Stealth' Brown doesn't appear to understand this, and the Treasury certainly doesn't. So there can't be too much hope that business will get what it wants next week.

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