Hot topic: Should you take your company offshore?

Tuesday, January 04, 2011 | Posted by: Fiona Cullinan
Categories: Thought leadership | Tags: business, tax, compliance, market, relocation, domicile, cash flow, intellectual property, migration, benefits, redomicile, IPO, trading hubs, feasibility

One hot topic around UK boardrooms right now is ‘Do we move offshore?’ Tax advantages are just one side of the story. Nick Farr, International Tax Partner, Grant Thornton, outlines the options for those thinking of relocating all or part of their business abroad.

Numerous UK companies have moved recently, with high-profile cases including HSBC’s CEO moving to Hong Kong, WPP’s board heading to Ireland, Ineos moving its HQ to Switzerland and Regus migrating to Luxembourg. Wolseley has just announced plans to move to Switzerland, citing tax savings of around £27 million.

But the trend is not just restricted to the large multinationals; many smaller AIM-listed or privately held businesses are also relocating, just without the media profile.

In fact, it is typically far easier for smaller, entrepreneurial businesses to move as they are more flexible and such a move can offer significant commercial, administrative and tax advantages for the right business.

WHAT ARE THE BENEFITS OF MOVING OFFSHORE?
Some of the key benefits identified by companies relocating include:

• Better proximity to markets
With emerging markets still growing fast, prospects in Asia are particularly tantalising at the moment. Singapore and Hong Kong are favoured hubs for trading in the region.
• Accessing local talent pools
Many offshore locations offer large pools of expertise, for example, Switzerland and Ireland for pharmaceutical companies.
• Reducing compliance headaches
Compared to company administration in the UK, countries such as Luxembourg or the Netherlands may offer greater simplicity, transparency and certainty.
• Improve cash flow
There are some very favourable tax incentives on offer, with effective tax rates potentially around or below 10%. into the commercial, tax and legal issues to consider in each jurisdiction.

WHAT DOES IT MEAN IN PRACTICE?
One thing is certain, there will need to be real business substance in the chosen location, both to obtain the commercial benefits and to ensure that the structure is tax-effective. Determining the right location is about piecing together a jigsaw. Key factors to be taken into consideration include:

• proximity to markets, suppliers and labour
• operational benefits
• compliance savings
• taxation
• impact on business culture
• costs of relocation
• willingness of relevant personnel to relocate
• short-term operational disruption.

WHAT ARE THE OPTIONS?
The options are endless, from simple relocation of a single business unit to full migration of the group. As a first step, it is important to map the components of the supply chain and identify the key value drivers in the business. Each component should then be considered in isolation to determine its optimal location before bringing the whole together. Some of the options to consider include:

• Centralised hubs
These can be set up for support services, such as a centralised buying hub to generate purchasing synergies. Transfers of this nature should be achievable with limited disruption to the wider business, and while savings are primarily operational, there may also be tax benefits. Centralised sales hubs (such as regional hubs in Dubai or Singapore) can offer more significant commercial and tax benefits, although the impact on the business is much greater.
• Intellectual property centres
For many businesses, much of the value lies with their intellectual property; from patents and trademarks to customer relationships and technical know-how. Some companies have transferred their research functions to locations to benefit from tax reliefs or incentives. Others are managing their intellectual property from a centralised global hub. Tax and legal benefits can be very significant. However, care is needed not to fall foul of tax anti-avoidance rules, especially when transferring intellectual property abroad.
• Full migration
Various high-profile cases in the press have involved migration. This typically entails ‘inverting’ – setting up a new overall holding company in a favourable jurisdiction – and relocating the board and key decision-makers offshore. This offers maximum flexibility and potential benefits, but there needs to be a strong appetite for change at board level and a good commercial reason.

WHERE TO LOCATE?
There is no right answer; it depends on business requirements. Popular locations include:

• Ireland
• Switzerland
• Luxembourg
• Netherlands
• Malta
• Cyprus

Further afield and offering favourable regimes:

• United Arab Emirates
• Singapore
• Hong Kong

NEXT STEPS
To assess what is right for your business, we would recommend the following three-step process:

• Mapping
Model the supply chain and identify key value drivers
• Brainstorming
Determine which functions and assets could, should or should not be relocated, and assess possible locations
• Feasibility
Undertake cost-benefit analysis.

For further help, speak with your local Grant Thornton contact,  or alternatively myself – nick.farr@uk.gt.com – if you require assistance in assembling the pieces of the jigsaw.

You can also find out more on our International Tax page for large corporates or Corporate Finance for integrated entrepreneurial services.

Image: © Ibrahim Lujaz/Flickr

This article originally appeared in the latest issue of Elevate magazine – sign up here to download your free copy. Or to subscribe to receive future editions, either electronically or in its printed version, please email your name, address and preferred format to elevate@uk.gt.com.

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