Ineos, Runcorn, U.K., a global manufacturer of petrochemicals, specialty chemicals and oil products, is causing controversy following the announcement that it's considering moving its headquarters and tax residence from the U.K. to Switzerland.
The company says the move would affect only about 20 out of its nearly 4,000 U.K. employees and save $613 million by 2014. This savings, it says, would further support investment in the skills, plant and technology that are critical to driving future growth and competitive advantage.
Ineos says that it has weathered the current recession well, has stabilized its business, is trading in line with its business plan and that its financial performance should improve further over the longer term. The company has estimated that the improvement in financial performance, coupled with current and expected changes in U.K. tax legislation, will result in significant levels of additional tax being payable by its businesses — money that would otherwise help secure competitiveness and re-investment across its production facilities.
"We have to make a decision that is right for Ineos, our businesses and our sites, to ensure we remain competitive long-term in a global marketplace," says Tom Crotty, CEO of Ineos. "Many leading chemical companies have European or global operations resident in Switzerland and we need to compete effectively with them. We remain committed to the U.K. and our facilities will continue to play an essential part in the long-term growth of Ineos. Investment in people skills, plant and technology is an important element of our ongoing competitiveness and the change of tax residence would allow us to increase investment to the benefit of all stakeholders in our business."
However, the company's statement doesn't mention that it received millions of pounds in tax relief toward the roughly £6 billion of debt it ran up in acquiring chemical production assets from firms such as Amoco, Bayer, Dow, Unilever and Union Carbide. This has provided even more fury from unions, according to The Guardian, a U.K. national newspaper.[pullquote]
"No U.K. company with a major domestic presence should be able to cut its tax bill simply by moving a tiny part of its operations overseas and pretending to no longer be a U.K. company," says Brendan Barber, Trades Union Congress general secretary. "If HM Revenue & Customs does not already have enough powers to prevent this, then the government should change the law so that companies who rely on U.K. workers, knowhow and infrastructure to generate profits are contributing their fair share to the public finances."
Another outraged organization is Tax Justice Network, London, U.K., a lobbying group that promotes transparency in international finance and opposes secrecy.
John Christensen, Tax Justice Network director, describes the Ineos situation as international tax arbitrage and an abuse of tax systems, according to a Business Week report. "There's been a slew of international companies moving their HQs abroad for tax reasons, and they generally don't move much more than a secretary and a janitor."
Even before Ineos made its announcement, the Engineering Employers' Federation (EEF), Birmingham, U.K., had published a report critical of the U.K. government's treatment of capital expenditure. In it, the EEF issues two key warnings. First, the tax regime fails to take into account technological advances and the level of investment that manufacturers need to make in them to be competitive. Second, rising administrative and compliance burdens placed on business, the attitude of the tax authorities and uncertainty over the direction of tax policy all add a premium to doing business in the U.K.
This comment about uncertainty over tax policy is a nod towards the forthcoming U.K. general election, which must take place on or before June 3. Not only will the outcome affect tax policy but it might also affect Ineos's plans. Any move to Switzerland would have to be sanctioned by the company's banks, including Royal Bank of Scotland and Lloyds, both of which the U.K. state holds a substantial stake following recent economic upheavals.
And Ineos isn't alone in threatening to move out of the U.K. Both Diageo and Unilever have made similar indications, although The Guardian dismisses these as a concerted effort by corporate U.K. to foster any incoming Conservative government into announcing tax cuts.
Seán Ottewell is Chemical Processing's Editor at Large. You can e-mail him at [email protected].