Yahoo!'s move to Geneva raises fears about Britain's tax policy

Fears of an exodus of major companies from Britain intensified yesterday after the internet search giant Yahoo! confirmed its decision to move its headquarters from London to Geneva. The US company is understood to want to relocate to Switzerland, where business taxes are much lower than in the UK, to "increase financial performance".

Its decision comes only days after the Budget, in which the Chancellor, Alistair Darling, pushed through changes to the tax system which disappointed the business lobby. Yahoo!'s move will stoke worries that London's standing as the de facto capital of European commerce has been irreparably damaged. Richard Lambert, the leader of the Confederation of British Industry, said: "We are deeply concerned that the UK corporate tax system is becoming uncompetitive and, without knowing the detail, this sounds like another sign of that."

Faced with global financial turmoil and a slowing economy, business leaders have warned the Treasury that, if it reaches deeper into the pockets of large companies, the steady trickle of those opting for more business-friendly climes could become a flood, which would cripple the economy. Nearly a fifth of UK tax receipts come from financial institutions in the City of London. They are among the most mobile businesses and are actively courted by officials from low-tax countries such as Ireland and Switzerland.

Yahoo! is not the first to leave. Kraft, the US food manufacturer whose brands include Vegemite and Toblerone, moved its main office from London to Zurich last year. Experian, the credit history company, chose Dublin for is new headquarters, while the Surrey head office of Gallaher, maker of Camel and Salem cigarettes, is to be relocated to Geneva by its new owner, Japan Tobacco.

Earlier this month, London managed to retain first place in the Global Financial Centres Index, a bi-annual survey by the British consultancy Z/Yen Group for the City of London Corporation. But New York was found to have closed the gap significantly since the Northern Rock fiasco and the global credit crunch. Apart from taxation, quality of life, public infrastructure and transport were also considered in the survey.

In the run-up to this week's Budget, the CBI urged the Treasury to cut corporation tax to 18 per cent to help persuade multinational companies based in London to keep their operations in the capital. Mr Darling reduced the rate from 30 per cent to 28 per cent – well above the levies of about 20 per cent charged in Switzerland and 3 per cent in Bermuda.

Yahoo!, which employs about 700 people in the UK, said up to 5 per cent of its European staff could be affected by the move, which will take place over the next 18 months. Seventy senior managers are understood to have been given 30 days to decide whether or not to transfer to Switzerland or risk losing their jobs.

Yahoo! is fighting a $40bn (£20bn) takeover approach from Microsoft. Its move to Geneva also follows a recent decision by it arch-rival Google to locate its European research headquarters to Zurich.