UK's Liberal Democrat party says companies that relocate for tax purposes but retain their UK operations are tax dodgers and should be treated as such.
The party's manifesto for the City of London unveiled on Monday (May 12) by leader Nick Clegg, said recent moves by companies such as Shire and United Business Media do not reflect the underlying competitiveness of the UK as some, including the Confederation of British Industry have suggested.
But practitioners do not accept that companies that move their tax residence abroad are escaping from paying tax. Lydia Challen, a partner at the law firm Allen & Overy said: "UK groups relocating outside the country will still be taxable in the UK on their UK profits so I would not call this a "tax dodge". Any group with a global business needs to keep under review where to have its holding company in order to remain competitive," she said.
An adviser from one of the big-four accounting firms agrees that relocations are not necessarily tax dodges. "These companies are simply setting up their affairs in a way that changes their tax consequences. The only way they could be considered a tax dodge is if the companies were still running out of the UK without any real restructuring," he said.
In the manifesto Clegg also pledged to cut the headline corporate tax rates, vowing to fund the reduction by minimising tax complexity by removing tax allowances and tax reliefs such as capital allowances and R&D tax credits.
But he did not announce by how much he would reduce the rate.
Treasury adviser to the Liberal Democrats, Chris Saunders, said: "We are not putting a figure on the corporate tax cut as it really depends on what's happening in a year's time and it depends on what the current government does."
Clegg also said his party does not support tax harmonisation in the EU but it believes there is "considerable merit" in the proposed move to a common European tax base.
Saunders said: "For a business such as Shell, a Dutch holding company which has businesses in the UK, there are a lot of interpretations of what is and is not taxable. This increases business costs. We are in favour of harmonising what is and isn't fair game for taxation across member states to reduce accounting costs and general business costs but we are against harmonising the tax rate."
