Companies may go abroad to avoid double taxation hit
Friday 04 July 1997
Privately some even raised the possibility of moving their domicile outside the UK. Analysts estimated the move, which could cost UK companies more than pounds 400m a year, would lead to a sharp increase in the number of companies choosing to pay their dividends as "Fids" before the 1999 deadline.
Hugh Collum, finance director of the SmithKline Beecham drug giant, which makes in excess of 90 per cent of its earnings from outside the UK and pays half its total dividend as a Fid, said yesterday the move could force some companies to leave the UK. "It is a possibility. It is an alternative if this proposal goes through. It is one of those issues that SmithKline Beecham has considered," he said.
Mr Collum said he would lobby Labour to modify its plans. "We would have expected the Government to put a cap on Fids, so that companies which make, say, over 40 per cent overseas can still pay dividends in this way. I hope we will find some way to compromise on this issue."
Michael Prideaux, a spokesman for BAT, said: "This is completely inequitable. I can't believe that a supposedly pro-business government wants to penalise UK companies. We will be arguing our corner. There are a lot of companies affected." RTZ, the world's biggest mining group and based in London, was known to be deeply unhappy and Glaxo Wellcome said it was "disappointed" and would "make our views known". David Saltmarsh, company secretary at Reckitt and Colman, said: "We have until 1999. This is a double taxation on our overseas profits."
The upset about the abolition of Fids, which were introduced by Norman Lamont when he was Chancellor in the early 1990s, reflects their "use" as a way for companies to avoid paying unrecoverable tax. Fids, which can only be paid by companies with significant non-UK earnings, allow companies to offset the Advance Corporation Tax (ACT) they pay on dividends against their mainstream UK tax bill. For companies which make relatively low profits in the UK and so have a small mainstream tax bill, accumulated ACT hits earnings.
Fids do not incur ACT and so allow companies to top up their UK dividends without damaging their earnings growth. Abolishing Fids will force companies which want to maintain their level of dividend growth to pay more ACT or could lead to cut in dividends. The companies hardest hit will be those such as Lasmo, BTR and RTZ which use Fids extensively.
Paul Wopshott, tax expert at Price Waterhouse, said: "Gordon Brown's move brings the whole ACT problem back to square one. It will be criminal if any company that can do it does not now start paying fids." Phil Collins, UK equity analyst at James Capel, said: "These companies will either now disappear from the UK altogether or will start paying fids so that investors will accept a lower level of UK dividends later".
Though most observers argued that leaving the UK was the "nuclear option" and may incur prohibitive costs, it is likely to be used as an argument to persuade chancellor Mr Brown to change his decision. According to Mr Saltmarsh: "If there is no other solution, if the government remains unreasonable, it may be the last resort."
- 1 Finland schools: Subjects scrapped and replaced with 'topics' as country reforms its education system
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 4 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
- 5 Zayn Malik quits One Direction: Hundreds of workers request compassionate leave following band member's exit
Germanwings captain Patrick Sondenheimer tried to break into locked cockpit door 'with an axe' as plane was descending
Amanda Knox murder conviction: Italian court overturns verdict for US student and Raffaele Sollecito in the killing of Meredith Kercher
Saudi Arabia says it won't rule out building nuclear weapons
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
#FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...