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Corporate re-domiciliation: UK Government publishes summary of consultation responses

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Published: 14 Apr 2022 Update History

The Government confirms that it intends to introduce a regime to allow companies to move their place of incorporation into and out of the UK.

In the summary of responses it is stated that the Department for Business, Energy and Industrial Strategy (BEIS) will continue to refine the policy, in partnership with HM Treasury, and HMRC and will engage publicly as appropriate.

The Government sees this policy as a key part of the strategy improving the UK’s attractiveness as a place to do business. Respondents to the consultation, which included ICAEW’s Tax Faculty, were broadly supportive of the proposal, noting that existing methods of relocating companies (such as setting a up a new UK holding company and transferring the existing corporate structure under that new holding company) are cumbersome and costly. Management time and legal fees were seen as the most significant costs that could be saved and maintenance of an existing legal entity was also seen as important.

Specific objectives cited as potentially significant reasons for re-domiciling to the UK included gaining access to the London Stock Exchange and other UK-based sources of investment, being in a better position to secure UK Government contracts and subsidies and achieving regulatory consolidation.

Many respondents noted that the wider business environment is likely to be the main driver for attracting overseas companies to relocate to the UK and that a new corporate re-domiciliation mechanism would help to facilitate that but not incentivise it.

Respondents also noted several potential barriers to re-domiciliation to the UK, including an outgoing jurisdiction’s exit taxes. It was also noted that not every territory allows outward re-domiciliation and so this could limit the number of territories from which companies can re-domicile to the UK.

The consultation contained little detail on how such a facility would work in practice, which prevented many respondents providing more detailed responses. The points on which there was a most consistent response are summarised below.

Company law and corporate governance issues

Some concerns were raised by respondents about the impact that companies re-domiciling to the UK could have on the integrity of UK company law and other governance frameworks. The overall message was that any companies re-domiciling to the UK should be able to demonstrate an existing financial and governance track record, but any regime introduced to facilitate this should not overly deter companies from re-domiciling that could generate economic growth for the UK.

Most respondents considered that an economic substance was not necessary, but many thought that a minimum one-year trading requirement was overly generous and was not sufficient for companies to demonstrate a strong track record.

It was also considered that jurisdictions from which companies are re-domiciling should not be required to demonstrate that their existing directors have a good standing. It was commonly observed that re-domiciliation should be analogous to a new establishment in the UK. If directors are eligible to act as such in the UK, then this should be sufficient. However, a large majority of respondents agreed that Companies House should be able to refuse an application or petition for the winding up of companies in appropriate circumstances.

Respondents were broadly supportive of allowing both inward and outward re-domiciliation as allowing a company to leave was seen as a way of increasing demand for migration to the UK in the first place. It was deemed logical that conditions applied to the inward regime would also apply to the outward equivalent.

The tax issues surrounding re-domiciliation

The ability to migrate a company’s residence status for corporation tax purposes was seen as one of the main reasons for taking advantage of a re-domiciliation regime. Most respondents therefore considered that a company re-domiciling to the UK should be treated as moving its tax residence here, subject to the provisions of any double tax treaty which deems the company to remain resident in its territory of origin. Similarly, most respondents indicated that it would be preferable for companies to be treated as ceasing to be UK resident if they re-domicile out of the UK (assuming they are not already treated as non-UK resident).

Generally, the re-domiciliation regime wasn’t seen as adding additional risk with regards to companies off-setting foreign losses against UK profits of other group companies. Existing protections were considered sufficient in that regard.

Respondents noted potential complexities when it comes to rebasing capital gains and intangible fixed assets on inward and outward re-domiciliation, including the choice of whether to use accounting carrying values or market values. It was considered that such rebasing would generally produce a fair result, provided an exit charge arose in the territory from which the company was migrating. Parity of treatment was considered necessary between exit charges for both re-domiciliation under the new regime and UK residence migration under existing routes.

The most significant personal tax issue noted under the proposals was the situs of shares in the company concerned for the purposes of inheritance tax and the treatment of income arising from those shares by UK resident individuals not domiciled in the UK.

Respondents noted the potential additional stamp duty costs arising on the transfer of shares in companies becoming domiciled in the UK and that this may significantly disincentivise re-domiciliation in some cases. For the same reasons, anti-avoidance measures may be required to prevent companies becoming non-UK domiciled to avoid stamp duty charges.

A number of potential VAT implications were noted, especially the impact on the place of supply rules and uncertainties over where the recipient and supplier of services belong for VAT purposes if they re-domicile.

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