Relocating a head office can be both ­controversial and complex. Yet a steady stream of companies continue to quit the UK – and, anecdotally at least, it appears that many more are considering a move.

A ­handful of industries have long been ­associated with ­offshore locations, such as insurance, ­reinsurance, hedge funds and online betting. In the case of financial ­companies, the appeal includes less ­onerous ­disclosure and ­regulation, and lower taxes. Businesses with a narrow remit and size, such as captive ­reinsurers (set up by insurers to reinsure ­themselves) or some hedge funds, are also more suited to being based ­overseas. Online gaming companies are often based ­offshore to ­circumnavigate stringent country laws on gambling. In the US, for example, online gaming is illegal. The UK is one of only a handful of countries to adopt a ­liberal stance towards gambling.

All abroad

In recent years, the type of company moving offshore has widened. Since 2008, high-profile examples have included Sir Martin Sorrell’s media giant WPP; United Business Media (UBM); FTSE100 drugs group Shire; Yahoo! Europe; building materials group Wolseley, which owns Plumb Center; and Informa, the FTSE250 publisher behind Lloyd’s List and Datamonitor. All have ­relocated to either ­Ireland – in the cases of WPP, UBM and Shire – or Switzerland, as Yahoo! Europe, Wolseley and Informa have done.

The overwhelming motivation has been to cut costs for ­shareholders and ­bolster profits by relocating to lower tax regimes. This is especially pertinent for companies that generate most of their earnings overseas. Wolseley chief ­executive Ian Meakins said last year that the company’s relocation had been ­driven in part by the ­controlled foreign companies (CFC) rules, under which UK tax is applied on overseas earnings. The rules state that UK companies ­cannot declare profits in subsidiaries with low tax rates, thus ­avoiding ­corporation tax. The only way they can do that is if the holding ­company also relocates.

The rules have gradually been tightened over the years and have become, in the words of one general counsel, “increasingly complex”. The cost of ­compliance is also seen as high. The Government has pledged to address this as it seeks to stem the flow of multinationals. It is consulting on the rules, and hopes to have a new regime in place by 2012. The Coalition is keen to ensure that, in the longer term, the UK’s corporate tax system is one of the most ­competitive in the G20, and announced a reduction in the headline rate of ­corporation tax in last year’s June Budget. The main rate will be cut from 28 per cent to 27 per cent by spring 2011 and to 24 per cent by 2014.Public interest

Although UK rates are still eclipsed by those in Switzerland and ­Ireland, just as taxes can go down, so they can go up. In Ireland, ­questions have been asked about why the country was not forced to raise its corporation tax rate, currently 12.5 per cent, when it was bailed out. There is also speculation that the drive towards tax ­harmonisation across the EU will eventually force Ireland’s hand. Rates are nearer to 30 per cent in most EU member states. But the corporate tax regime is not the only reason for companies to quit the UK. With personal tax rates rising – the highest rate is now 50 per cent – some feel that a ­wholesale move is necessary to attract and retain the best staff in a global ­marketplace.

As for controversy, few companies considering leaving the UK can escape it. One business backed out of talking to The Lawyer about its relocation after ­getting a bumpy ride in the mainstream press. ­Companies that base themselves offshore have long been criticised for perceived tax avoidance and, with the ­Government forcing through swingeing spending cuts, the focus on the taxes paid by major ­corporations has never been sharper.

For good or bad, relocation will remain a discussion point between general ­counsel and chief executives. Any companies that decide to go ahead will face a mammoth task. To shed some light on how complex a process it can be, we talk to John Burton, company secretary and ­general counsel at Informa, and to Yahoo! Europe general ­counsel Grainee Brankin about their companies’ moves to Switzerland.