Page last updated at 12:49 GMT, Monday, 5 May 2008 13:49 UK

UK ad giant mulls tax move abroad

Sir Martin Sorrell
The changes could cost WPP tens of millions of pounds, Sir Martin said.

WPP, the world's second largest advertising firm, says it will consider moving its London headquarters overseas if proposed tax changes go ahead.

The company, which currently pays 200m a year in tax to the Treasury, told the BBC the measures would raise its tax bill and threaten its profitability.

The proposed new rules would mean companies would pay taxes in the UK on dividends earned overseas.

The Treasury argues other tax changes would offset the impact on companies.

"If the measures as is are introduced, ratified, confirmed and implemented, we will be taking a very serious look at the advantages and disadvantages [of moving its tax domicile and headquarters offshore for tax reasons]," WPP chief executive Sir Martin Sorrell told the BBC.

"We are talking about very very significant sums of money," he said.

I feel slightly sorry for the Treasury and how it's been pilloried for proposals to reform the taxation of multinationals
BBC Business editor Robert Peston

The changes would add tens of millions of pounds to WPP's annual tax bill.

But that would have to be weighed up against other factors, like any potential impact on the company's image of moving abroad, Sir Martin said.

Taxing assets

The Treasury wants to levy tax on companies' assets that have been located abroad purely to reduce their tax bill.

For example, this would affect companies that develop a new drug or piece of technology in the UK, then register it in a lower-tax country to reduce the tax payable on the income generated.

"What the Treasury is suggesting doesn't seem particularly unfair, if its aim is to tax revenues from assets that could only have been developed in the UK but were then transferred overseas purely to save tax," said the BBC's business editor Robert Peston.

"But in practice, it's rarely as simple as that. Some element of a new product or service may have been developed here, but much of the research and development may have been shared with offshore operations," he said.

Another proposed change, to exempt companies' foreign dividends from taxation, should save them money the Treasury says, making the changes "broadly revenue neutral" overall.

Company 'exodus'

A delegation from the Multinational Chairmen's Group, which brings together some of the world's most powerful companies, recently met the Prime Minister and the Chancellor to voice similar concerns.

I think the proposals will lead to the exodus of a number of multi-nationals
Sir Martin Sorrell, WPP chief executive

A Treasury spokesperson said on Sunday that the government conducted regular and ongoing discussions with businesses on the shape of these proposals.

Sir Martin Sorrell, whose company creates adverts for M&S, Nike and Unilever, said it was "good to see the government are taking it seriously", setting up a task force to look at the issue.

"But I do hope we will get some action," he said.

"I think the proposals will lead to the exodus of a number of multi-nationals. I have been surprised by the number of our clients and non-clients who are considering this action," Sir Martin said.

Last month British drug maker Shire and publisher United Business Media announced plans to move their tax domiciles to Ireland, a move that will cut their tax bills from 28% to 12.5%.

And in March, Yahoo said it will move its European headquarters to Switzerland from London.

The government has clashed with businesses about other tax changes, including capital gains tax and so-called non-doms, foreign staff working in the UK but paying tax abroad.

"It will be a dent in the image of London as a financial centre. This is another issue that will make London less competitive and given the rise of the East will become more and more important," Sir Martin said.

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