An interesting question

Asked by Richard Murphy.

The English isn’t great: ignore that. The issue is this: do you believe anything said here? Is redomiciliation really a case of ‘moving up the scale of offshore administrations’? Or could it be something much more pernicious – the opportunity for a company to flee from one jurisdiction to another, lock, stock and barrel,. the moment a hint of any enquiry arises, meaning that those making the enquiry then have to start all over again in another place? In that case is it just a mechanism that facilitates fraud?

No one will be surprised to know that I incline to the latter opinion.

And no one will also be surprised to know that I see this as example of another dangerous development in our world – which is that of the corporation that floats free of responsibility to any place. Once that happens regulating the company becomes virtually impossible because there is no sanction to impose.

But I may be wrong. There are those (I’ve noticed) who like to say I am. So, for those who’d like to persuade me that I am I make these requests:

1) Which countries allow redomiciliation, and when did they begin to do so?

2) How many cases are there, by jurisdiction, a year?

3) Where do the companies move from, and to?

4) What are the costs?

5) Why do companies say they move?

6) What happens to the records in the country from which the company moves – are they simply expunged, or can they still be subject to an enquiry?

7) And why if this is so useful is its use largely restricted to the tax haven world?

I\’ll answer only one and seven.

The answer to 1) is that every EU country now allows this. As does every EFTA and EEA one. It\’s a direct consequence of the founding ideal of the EU itself: The free movement of goods, people and capital. Yes, this has been tested in court. There are two strands to it. Given that companies are legal persons they have the same right to change domicile as natural persons.

The second is the creation of the SE under the "Bolkestein Directive". This is the EU wide equivalent of a PLC (the capital requirements make it more like a PLC than a Ltd). It can, by simply moving its head office, domicile itself in any EEA jurisdiction. Yes, this includes Liechtenstein. No, it does not have to liquidate to do so.

Given that answer to 1) the supposition in 7) is obviously untrue. It isn\’t largely restricted to the tax haven world, it\’s at the heart of corporate structure and taxation in the world\’s largest integrated economy (to the extent, of course, that the EU is indeed the world\’s largest integrated economy).

7 comments on “An interesting question

  1. Tim

    It’s only possible in the UK with a private act of parliament – to the best of my knowledge – based on the fact that such Acts have been passed

    Not quite the same as in the tax haven world

    Richard

    Tim adds: Richard, sorry, but you’re some years out of date. You’ve written some amount about companies like Shire Pharmaceuticals moving their domicile. There were no private acts of parliament necessary for them to do that, were there?

  2. Tim, you really have to give up this Murphy addiction; it is almost as bad as Oliver Kamm fisking Chomsky or Stephen Pollard going after that jokester, Neil Clark.

  3. Dear all, you can’t just glibly talk about multinationals like this.

    Domicile is probably a meaningless term anyway, what is important is country of incorporation and country of tax residence, and to a lesser extent, what stock exchange the holding company is quoted on. These are all quite distinct concepts and it possible for a country to be ‘domiciled’ (whatever that means) in Country A, incorporated in Country B, tax resident in Country C and quoted on the stock exchange in Country D.

    Shire plc, as it happens, continues very much to be UK resident – how they did it was to set up a new holding company (Jersey incorporated, for whatever reason, but apparently Irish tax resident) and the new company acquired all the shares in plc on a one-for-one basis.

    So a Shire shareholder used to have x shares in Shire plc and now has x shares in a new holding company that is tax resident in Ireland.

  4. Wouldn’t a simplified tax structure be horrendous? There’d be starving accountants lining up outside soup kitchens. Much better this way.

  5. Basically there are simply a number of different jurisdictions, each with tax or trading rules for companies about entering the jurisdiction, the period in the jurisdiction, and exiting the jurisdiction. Those in charge of a company will assess the rules and any other considerations they deem relevant, and decide where they want to base the company. There is no obligation to base a company in one jurisdiction rather than another. The rules of one may be altered to entice a company to base itself there rather than anywhere else, while the opposite also applies, sometimes as a result of the law of unintended consequences (eg putting up tax rates).

  6. I think there is some confusion of terminology here.

    There are lots of ways of “redomiciling”.

    Functionally, you can go the Shire route of just introducing a new holding company (typically using a cancellation scheme under Part 26 of the Companies Act 2006) .

    Literally redomiciling – by which I mean turning an existing English company into a foreign company – is harder and not really necessary given the above. But it could be done under the new European Merger Regulations.

Leave a Reply

Name and email are required. Your email address will not be published.