Reckitt Benckiser Considering Quitting UK Over Tax

by Robert Lee, Tax-News.com, London

19 August 2009

Reckitt Benckiser, the manufacturer of several well-known brands of household cleaning and health products, has become the latest major British company to consider moving its headquarters out of the UK to save on tax.

Despite the government’s efforts to improve the corporate tax system for multinational companies based in the UK, the company’s chief executive, Bart Brecht, has indicated that the tax regime is becoming less attractive relative to other jurisdictions. "Clearly the tax situation in the UK is not improving for companies,” he told the Daily Mail, adding that the firm was holding "ongoing discussions" on the issue of tax domicile.

The UK’s corporate tax rate, at 28%, is above average for the European Union, but it is other aspects of the regime, along with ongoing uncertainty over future tax laws, that are frustrating UK-based firms.

Last month, the company revealed in its half-year results that its average tax rate rose slightly to 25% from 24%.

Under long-awaited international tax reforms, dividends from overseas subsidiaries can generally be received completely free of UK corporation tax, a move that was supposed to benefit companies like Reckitt, which manufactures the vast majority of its goods outside of the UK. However, this exemption only applies to dividends derived from "real" economic activity, not income from intellectual property, trademarks and copyright – something which has led several companies with substantial IP income to move their tax domicile out of the UK, or to reconsider their UK tax position.

Companies have also expressed concern over anti-avoidance rules that restrict the tax deduction available for finance expenses of groups of companies – the so called "debt cap" rules.

In July, fast food chain McDonalds revealed plans to move its European HQ from the UK to Switzerland to enable “the strategic management of key international intellectual property rights.” Prior to that, Informa, the publishing and conference company, announced that it was switching its tax residence to Switzerland to take advantage of “a less complex taxation system which offers upfront certainty of treatment and does not seek to impose tax on the unremitted profits of subsidiary companies in other jurisdictions.”

They join a growing list of firms from a variety of sectors which have publicly announced plans to relocate for tax purposes, including pharmaceutical firm Shire, publishing company United Business Media, advertising agency WPP, Brit Insurance, engineering firm Charter, and investment company Henderson. Ireland, Luxembourg and Switzerland are among the main beneficiary countries of these corporate defections.

After the government announced a new 50% top rate of income tax in the last budget, which is due to come into effect next year on annual income above GBP150,000, Brecht also complained that the UK’s high personal taxes are adding to the problems, with the company finding it increasingly difficult to recruit foreign personnel.

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