Taxation is one of the key factors in deciding where a business is domiciled. Recent reports from the UK suggest insurers may be about to desert for more favourable climates unless changes are made that support competitiveness. Liz Booth reports.
The UK government is being urged to improve the tax position for insurers in the wake of a report from the ABI, suggesting that many insurers are considering leaving the UK because of its tax regime.
The report revealed that 80% of UK insurance executives feel that if the government fails to improve competitiveness, there will be a drop in the number of insurance firms based there.
And, on a personal level, almost two-thirds of senior management are tempted to move abroad because of the current UK personal tax system.
The report, ‘UK competitiveness: the way forward for insurance’, makes a number of proposals to improve the country’s position (see box).
After its publication, there were suggestions that Alistair Darling was planning to redraw some aspects of the insurance tax regime, possibly considering changing the rules on controlled foreign companies and overseas branches – two of the ABI’s concerns.
But the Treasury has refused to be drawn on the rumours, with a spokesman saying: “The chancellor keeps an eye on the insurance market, which he sees as performing robustly in the past year. The UK remains a competitive place to do business.”
Brit has been among the companies that have openly redomiciled from the UK this year; in Brit’s case to Netherlands, where it says the “stable fiscal strategy” was among its reasons for the shift.
Chaucer has also been named as discussing the issue of relocation, while RSA has been reported to be considering its options. “Redomestication is something we’ve been looking at for some time,” an RSA spokesman says. “Each time we came to the conclusion that to do it in a sustainable way would cause disruption to the group.
“We have therefore been looking at ways of getting a significant portion of the benefits without the need to redomesticate. In 2010 we will establish a reinsurance company in Ireland and reinsure non-UK group risks.
Any profits from this reinsurance activity will be taxed at 12.5% in Ireland with no change to the UK.”
He added: “We have a very good relationship with HMRC and are encouraged by the direction of travel on reforming the taxation of foreign profits.”
Willis also plans to change its place of incorporation to Ireland, from Bermuda. The broker described Ireland as “providing a more stable environment” and that the move “improves Willis’s ability to maintain a competitive worldwide effective corporate tax rate”.
Meanwhile, for UK firms in general, Dominic Stuttaford, a tax partner at law firm Norton Rose, has warned that tax is becoming an increasing concern for his clients, some of whom review the issue of domicile on an annual basis.
“Industry is more conscious of taxation in the UK now,” he says. “A few years ago there was a perception that the UK was probably quite a safe place to do business in tax terms. But there is a general feeling that it is less stable now.
“The UK tax system needs to become more predictable, and it is not just about people already here. If you were a large US business looking to move into Europe, would you come to the UK right now?”
Liz Booth is a freelance journalist