Multinational groups continually review their position in terms of optimal location for operational and fiscal purposes. Current holding structures may appear under threat by recent announcements against perceived offshore tax havens. The possibility of the taxation of foreign profits or the imposition of withholding tax on payments has come to the fore and many corporate groups with a parent company incorporated in countries like Bermuda or the Cayman Islands have migrated to other jurisdictions to locate their top holding company in a jurisdiction that has a good network of tax treaties and trade agreements. A migration may also be efficient for groups located in jurisdictions with overly complex tax systems, including strict controlled foreign company (CFC), transfer pricing, thin capitalisation and other rules that add to compliance costs. For example, migration will generally be beneficial for a UK corporate group which has low taxed non-UK profits or significant finance or IP income as compliance costs associated with CFC and transfer pricing rules in the UK can be reduced.
How to Migrate
The tax residence of an existing holding company can sometimes be changed by moving its place of effective management and control outside of its existing jurisdiction for tax purposes. However, since this can trigger a tax charge on exit in some jurisdictions (eg the UK), it is often more effective to incorporate a new parent company in the new jurisdiction and interpose the new parent company between the existing parent company and the public shareholders. For public companies incorporated in a common law jurisdiction, this can often be done by way of a cancellation scheme of arrangement approved by the court or share-for-share exchange. In effect, the public shareholders agree to the cancellation or swap of their shares in the existing parent company in return for shares of an equivalent amount in the new parent company. For public companies incorporated in the EU, this can also be achieved by re-registering the existing parent company as a "Societas Europaea" or "SE" (the new form of European public company) and then moving its registration to Ireland. EU parent companies can also migrate to Ireland by merging with an Irish public company under the Cross-Border Merger regulations.
Establishing a new parent company as a resident outside the jurisdiction of the existing parent is often only part of the migration process as it is often beneficial to...