Low-tax UK lures Swedes

Ericsson, the telecommunications equipment giant, is thinking of abandoning highly-taxed Sweden and moving its head office from near Stockholm to Britain - increasingly seen as a tax haven by international business executives.

"We are thinking of moving some or all of our head office functions overseas and the UK is a very strong candidate," said Lars Stalberg, senior vice president of corporate relations.

Any move would include Lars Ramqvist, Ericsson's chief executive, Stalberg said.

Ericsson is finding great difficulty in recruiting top executives willing to work in Sweden and persuading senior staff working in group subsidiaries overseas to work back at HQ. "The tax burden is scaring people away," said Mr Stalberg. "The UK is a major market for us, it scores well on logistics and ranks very high in any international survey of good places to locate."

Ericsson's board instructed Ramqvist a few weeks ago to consider moving in what would be a further blow to the Swedish government. When Pharmacia, Sweden's best-known pharmaceutical giant, merged with Upjohn of the US 18 months ago, the new company chose to locate its worldwide HQ near Slough, close to Heathrow airport.

Hans Rausing, the billionaire founder of Tetrapak, long ago fled Sweden to live in the UK, where his pounds 3bn fortune makes him one of the wealthiest residents.

Ericsson sold pounds 773m of communications equipment in the UK last year, making it the company's third largest market after China/Hong Kong and the US.

The company employs 2,300 in the UK, 850 of them working in high tech research and development. Ericsson's UK business phone networks and cellular systems operations are run from sites in Burgess Hill, Sussex, and Guildford, Surrey. Its major manufacturing plant is in Scunthorpe, Lincs.

Ericsson is a vast international company, a major player in high-tech phone equipment, with worldwide sales of more than pounds 11bn last year and profits before tax of more than pounds 900m.

Sweden's top marginal rate of tax is 55 per cent. The amounts employers pay in social security contributions for their workers are among the highest in Europe. In addition the state imposes a 1.5 per cent wealth tax on all assets, including houses, of over pounds 100,000. The impact of the wealth tax and income tax on dividends means, said Mr Stalberg, "that it can actually cost you money in income terms to hold an Ericsson share".

Even if Ericsson's top brass do move, the company's legal head office would stay in Sweden since corporate taxes, as opposed to personal taxes, are low by international standards.

The company is one of Sweden's largest exporters and employers. Around a half of its 94,000 workers are in Sweden though only 3 per cent of its world sales are there.

Ericsson's response comes after several weeks which have seen a deepening of the normal animosity between Swedish industry and government over personal income tax rates and wealth taxes.

Several family-controlled, yet publicly-quoted companies, including Hennes & Maurtiz, a leading clothing retailer, have altered their listing status on the Stockholm Stock Exchange to avoid the impact of a new law extending the application of the wealth tax on shareholdings.

Stalberg insists that Ericsson is serious about the possibility of moving overseas and is not simply trying to bounce the government into cutting taxes.

The UK's 40 per cent top rate of income tax is the lowest in Western Europe. And the country is a tax haven for foreigners who can benefit from special tax breaks while working here. For these executives tax is levied only on the proportion of working time spent in the UK and on the amount of income actually brought into the country.

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