London Tax Differential Overstated; Hedge Funds Still Active
17 Feb, 2010, London
According to Cushman & Wakefield’s new Business Briefing 'Impact of Taxation on Corporate Locations', the current differentials in tax environment between London and other business friendly cities is relatively insignificant and unlikely to lead to a major exodus of UK companies to locations such as Geneva or Dublin.
It warns, however, that the increasing corporate and personal tax burden under Labour over the last three years will become a more important factor for UK companies when considering their location as we move out of recession. C&W’s annual survey of 500 of Europe’s largest companies (European Cities Monitor 2009), showed that the importance of the climate that governments create for businesses through tax policies or financial incentives is deemed most important by more than 30% of companies in Switzerland whilst only 10% of UK-based companies consider it an ‘absolutely essential’ factor in the location of their business. Over the last three years of the survey, however, the number of UK companies saying the factor is ‘important’ has increased steadily by 5%.
This is reflected in the number of major corporates which have relocated from the UK in the last few years largely because of domestic fiscal policy. These include WPP to Ireland, McDonald’s to Switzerland, Cisco to Belgium and Microsoft to Luxembourg. There has also recently been considerable speculation about the extent to which hedge funds will follow suit. London is home to 85% of Europe’s hedge funds and it is claimed that 18 are currently contemplating relocating to overseas locations, principally Switzerland and New York.
There has been much market and media speculation that London’s hedge funds will relocate en mass with Switzerland named as the most likely destination. Anecdotal evidence from Cushman & Wakefield’s London West End office team however, suggests that hedge funds and private equity companies remain actively seeking accommodation in the city’s prime office market accounting for around 10% of take-up.
David Hume, head of tenant representation in Cushman & Wakefield’s London West End team said: “Hedge funds remain active and there’s little evidence that plans for expansion or new office space have been put on hold since the government’s planned tax hike to 50%. Even if some do decide to leave London, additional companies are quite likely to come in to replace them or to start up in London as it is still the world’s most developed and sophisticated financial market.”
London’s combined corporate and income tax rate still remains lower than most of the major economies in Europe. At 28% it is behind France (34.43%), Germany (30.18%) and Spain (30%). Whilst UK companies perceive Dublin and Geneva to be top in terms of the taxation environment created by government, London was highly rated by companies from France and Italy. This was reflected in the overall ranking where Dublin was named by European corporates as the most attractive location by taxation environment followed by Geneva, Warsaw and London.
With Switzerland touted most often as the most likely destination for corporate relocations, it is clear from C&W’s survey of 500 corporates that although Geneva is highly ranked for its taxation environment, freedom from pollution and quality of life, it falls well short of London in the major factors considered most important when considering location. London is ranked number one in each of the following factors with Geneva’s position in brackets: access to markets (19), qualified employees (14), telecommunications (20), international transport links (17), internal transport links (16) and languages spoken (4).
Elaine Rossall, associate in Cushman & Wakefield’s European research group, said: “Taxation is only one part of the location decision, and London is successful as a business location because of it is an attractive place for people to work, it provides easy access to all corners of the globe, its infrastructure is improving and it still an easy place to do business in. It is a combination of these issues that should assist London in maintaining its position as a world class business centre.”