Ireland: 3, U.K.: 0

August 28, 2008

The British Treasury has been rocked again by the recent announcement by the investment firm of Henderson Group Global Investors that they are considering changing their domicile to Ireland from the U.K. in order to lower their tax bill. Should it make the move to Ireland, Henderson will join the pharmaceutical firm Shire and the media firm United Business Media who have already changed their domicile.

According to the Financial Times article “Irish Tax Move Revives Fear of Exodos“:

Its announcement underlined concerns about the waning competitiveness of the UK tax system, which led to the departure of two multinationals in the spring. Many others are examining their options, including Brit Insurance, which on Wednesday confirmed it was “actively considering the issue of tax domicile”.

John Cridland, deputy director-general of CBI, the employers’ group, said: “The UK’s uncompetitive corporate tax system is driving firms overseas, and until this is recognised and tackled we fear more internationally mobile firms will follow this path.”

Besides the difference in the U.K.’s 28 percent corporate rate versus Ireland’s 12.5 percent rate, the U.K. taxes multinational firms on their worldwide profits. Ireland does not.

As we have written before, the U.S. corporate tax regime is similar to the U.K. system in that it taxes companies on their worldwide earnings rather than on just the profits earned domestically. U.S. firms are even more disadvantaged than U.K. companies because the combined federal-state corporate tax rate is 39.3 percent, the second highest among industrialized countries.

The flight of companies from the U.K. has been a wake-up call to the British government. The question is, whether American politicians react to the early warning signs before it is too late.

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