Duff and Phelps’ Regulatory Tax Advisory team has assisted a number of businesses to relocate some or all of their operations outside the UK. The areas below are the key tax and restructuring considerations that should be considered before initiating any movement of individuals, teams or operations outside the UK:
A comparison between the applicable tax rates should be undertaken, including corporate taxation, personal taxation and social security contributions. For example, UK corporate tax rates are set to fall to 17% by 2020 and social security taxes can make a big impact on the costs of hiring people.
Depending on the extent of any migration of operations out of the UK, a revision of the businesses’ transfer pricing policy will be required. The fee charged for any services performed in the UK versus alternative jurisdictions should be set at an amount which represents an arm’s length price.
Moving operations outside the UK involves relocating people and their families. As well as ensuring personal tax implications are managed issues such as appropriate housing, schooling, work permits, lifestyle and incentivisation or compensation must be factored into the cost and timelines of relocation.
As a result of establishing a business outside the UK, the Group structure needs to be revisited. Will the non-UK operations be kept under a holding company structure or be separately owned? Will the UK establish a branch or a subsidiary and what are the tax implications of this choice? The UK controlled foreign company (CFC) regime, withholding taxes on dividends, any exit charges or crystallization of gains, the tax profile of the shareholders and their exit options along with the BEPS initiative all need to be evaluated in making a choice about the future Group structure.
Clearly the movement of people or operations from the UK will require increased capital expenditure on set-up costs. Certain services and assets may be more or less expensive depending on the local economy and exchange rates.
As with any large project, planning an appropriate timeline for any movement is key. For example, making sure that individuals are not tax resident in both the UK and an alternative jurisdiction during one tax year will make their personal tax returns simpler.
Any movement of resources from the UK should only be undertaken once the correct infrastructure is deemed to be in place. Examples of this include legal, tax, accounting and regulatory infrastructure.
As well as the tax and regulatory environment, the political environment and its stability, access to global treaties, availability and quality of service providers, access to talent and new people, technological connectivity, and office space are also key to making a decision as to where to establish operations and which operations to relocate.
Duff and Phelps’ Regulatory Tax team has experience in the tax issues of migrating people and operations outside the UK. We can model potential group structures, taking into account transfer pricing implications, as well as producing timelines for efficient project management, wherever the planned migration should be to.