The real reason Aon is moving its headquarters to the UK
Insurance giant Aon has denied that tax is the reason why it is relocating its global headquarters from Chicago to London, but documents seen by International Tax Review suggest otherwise.
An Aon spokesman said the relocation was designed to bring the company closer to its clients and was not based on tax strategy.
But the UK’s favourable territorial tax regime is thought to have been a key consideration in the board’s decision to move across the pond.
SEC filings distributed to Aon’s shareholders on Friday, said the company expects to drive significant value to shareholders under a UK territorial tax system by “increasing future cash flows through a significant reduction in our global effective tax rate, due primarily to changes in the geographical distribution of income.”
While the UK levies corporate tax on a company's worldwide income, it will generally provide tax exemptions for dividends and gains derived from non-UK trading subsidiaries.
Daniel Friel, of Latham and Watkins, said the result of this is that dividends from non-UK subsidiaries will only be taxed in the jurisdiction where the subsidiary is based.
“Profits of a US trading subsidiary will probably suffer US tax, but no further UK taxes when those profits are received in the UK as a dividend” said Friel.
The move - which will only involve about 20 employees from the company's leadership team - is expected to take place later this year, following a shareholder vote in May.
Osborne announced a complete overhaul of the CFC regime in the last budget to make it easier for companies to exempt overseas profits.
And this move, coupled with the pledge to reduce the corporate tax rate to 23% by 2014, could be having the desired effect, in light of Aon’s announcement.
Friel said that while the primary reason for Aon’s move is probably to reflect where the business is actually generated and where the capital is located, it is clear the UK’s increasingly attractive tax regime had a part to play.
“There seems no doubt that a whole range of tax rules in the UK and the US have made the move easier than it otherwise would have been,” said Friel.
“I think what Osborne has done rather gradually is to remove uncertainty surrounding the UK CFC rules without ultimately changing the rules in a material way for most companies.”
Peter Cussons, of PwC, said that while Aon claim its proposed move is not tax related, tax must have been a factor, because it is such a big global player in the insurance market.
“This is great news for the UK,” said Cussons. “When you look at the combination of favourable measures the UK has in place, there are obvious reasons Aon has chosen to come here.”
Cussons highlighted capital gains exemption, dividend exemption, the impending CFC reform, and optional foreign branch exemption as factors which will have drawn Aon to London.
In the case of Aon, the UK also benefits from London’s status as a leading global centre for insurance and financial innovation.
Nicholas DeNovio, a Chicago-based tax lawyer with Latham and Watkins, said the US anti-inversion tax law, enacted in 2004, prevents US companies from expatriating unless they have substantial business activities in the jurisdiction to which they move.
“A US-based company seeking to move its headquarters and parent company structure is generally limited to selecting a jurisdiction in which it has substantial business activities,” said DeNovio.
This appears to make London the preferred destination for any US insurance giants wishing to relocate to Europe.
Financial secretary to the Treasury, Mark Hoban, said: “Aon’s decision is a strong endorsement of London and the UK.
“The UK continues to be one of the leading global centres for insurance, providing firms with the right environment to drive long-term growth, identify opportunities in emerging markets and utilise British expertise in risk management.”