Springfords LLP blog

Some news, views and comments about everything and anything, relevant and irreverent.

Over taxed and over here

01 September 2014

Massive American corporations have always had an avaricious eye focused on UK companies.  One thing has changed though, it’s not just profit that is driving the scramble to take a bite from the old country’s corporate body.

A quick read though the business pages of any UK newspaper will present you with a litany of stories about dollar-rich corporations making bids for not necessarily cash-strapped British companies.  Nothing new there you say - and you’d be right.  Britain has always been a stable economy for overseas investors, and that’s always proved attractive for anyone seeking to expand their business into a developed market.  From oil-rich sheiks to shady Russian oligarchs, everything from football clubs to newspapers have been made offers difficult to refuse.

Never ones to miss out on an opportunity for capital appreciation, the Americans have been in on the act for almost as long as there’s been a tune to the Star Spangled Banner.  So, with news of one business raid after another, what can you see by the dawn’s early light, as the sun rises over the Charlotte Square and the City of London? 

The answer is a new wave of would-be corporate investors, making a landing on these shores, with the express intent of migrating into the UK.  This time though, there’s a difference, and that difference is something we’re all keenly interested in … tax.  That’s right, Britain is proving attractive for a whole new reason, and, if the concept of migrating to Britain because of its tax regime leaves you going back and reading this line again - we wouldn’t blame you.

Obama is furious, we’re told.  Even if the American president has woken up to the tax revenue being flushed away overseas, some say Britain is sleepwalking into a corporate relocation bubble. 

This news comes on the back of a raft of ostensibly UK companies heaving themselves offshore to cut their corporation tax bills, and forcing most of us to re-evaluate where we buy our yuppie coffees.  So it seems incredible that anyone would want to set up business here in order to take advantage of the way our tax works.

That, though, is just the case.  Even compared with us, the home of the brave is anything but the land of the free.  Our labyrinthine tax book is but a mere pamphlet when held up to the American version.  Where our chancellor George Osborne rakes in by hand, his stateside counterpart - Jacob Lew - uses a John Deere tractor cum monster truck to scour the landscape clean.

So, in short, an American company that establishes its HQ over here, can avoid all that by declaring its profit centre the UK.  The easiest way to do that is to simply take over a going concern on the shores.  Hey presto - tax inversion.

Whether having your American pharmaceutical bottom line written up in the UK is any more ethical than saying all those frappe-latte cappuccinos slurped by Britain were actually swilled in Luxembourg is open to debate.  What’s obvious is that, unless tax regimes change radically on both sides of the Atlantic, Barack is still going to have steam frothing from his ears as corporate America relocates its profits to the UK.

This could have more implications - and opportunities - for all of us.  More corporate activity in the UK can be a good thing, if it outweighs the inevitable shakeout that mergers and acquisitions inevitably bring.  However, if American companies are compelled to retain profits in the UK, that does open a new queue of investors, seeking somewhere to put those expensive-to-relocate profits.

If that leads to a round of American investing in the UK, maybe we should all be familiarising ourselves with the leading American corporate players.  We should be braced for servicing all those companies unfamiliar with the quaint old British ways, and making sure our fax machines can accept those awkwardly shaped US tax documents - whether they arrive the right way up, or inverted.

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springfords blog

Some news, views and comments about everything and anything, relevant and irreverent.

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