Britain becomes haven for U.S. companies keen to cut tax bills

Nothing about the narrow cream-colored lobby at 160 Aldersgate Street in the City of London financial district gives a hint of its role at the center of the offshore oil industry. 

That’s because the building is occupied by a law firm. Yet, on paper at least, it is also home to Rowan Companies, one of the largest operators of drilling rigs in the world.

In 2012, Rowan, which has a market value of $4 billion, shifted its legal and tax base from the United States to Britain. But not much else.

“We changed our corporate structure and we’re legally domiciled in the UK but our headquarters and our management team remain in the U.S.,” Suzanne Spera, Rowan’s Investor Relations Director said in a telephone interview from Houston.

“It has been positive. We take advantage of trying to be competitive with our effective tax rate.” 

Indeed, Rowan filings say the shift helped cut the company’s effective tax rate to 3.3 percent in 2013 from 34.6 percent in 2008. Spera said Rowan complies with all UK tax rules.

A government spokeswoman for the Treasury said recent changes to the tax rules were aimed at supporting “genuine business investment”.    

“The UK is not a tax haven. In 2015, our main rate of corporation tax will be 20 percent, well above the levels seen in tax havens,” she said in an emailed statement.

In the last year around a dozen major U.S. companies including media group Liberty Global, banana group Chiquita and drug maker Pfizer unveiled plans to shift their tax bases overseas outside the United States.

Historically, when U.S. companies wanted to cut their tax bill they usually reincorporated in Caribbean Islands or Switzerland. 

However, following recent legal changes whereby Britain largely stopped seeking to tax corporate profits reported in other countries, including tax havens, companies are increasingly choosing the UK as a corporate base. 

President Barack Obama and Congressional Democrats have proposed measures to stem the flow of so-called “inversions”, although Congressional gridlock on tax reform means new barriers to overseas moves are unlikely anytime soon.

There is no official list of companies which have moved their tax base to Britain but government officials, tax advisors and lawyers said at least seven had re-based to London — Aon Plc, CNH Global N.V., Delphi Automotive Plc, Ensco Plc, Liberty Global Plc, Noble Corp. Plc. 

Drugs group Pfizer and Omnicom had planned to transfer their tax domicile to Britain, while retaining U.S. headquarters, but the takeover deals which were meant to facilitate this recently failed. 

U.S. and UK filings and other company statements from the seven that relocated showed that while redomiciling to London can cut a company’s tax bill, it usually involves relocating just a handful of senior executives — and sometimes not even that many.

The UK has made a very clear policy decision to engage in tax competition for multinationals. Its fair to say it’s rivaling Ireland, said Stephen Shay Professor of Law at Harvard University who has testified to Congressional investigations into corporate tax reform.

When I go to tax conferences now, I hear people talk about the UK as a tax haven. 

Bernhard Gilbey, tax partner at law firm Squires Sanders said tax competition was common across countries and that companies were within the law and indeed faced competitive pressure to structure themselves in response to such governmental incentives.