Japanese companies are stepping up plans to move businesses out of the UK, on the premise that their country’s tax authorities have granted a temporary amnesty on cross-border mergers between Britain and other EU countries ahead of Brexit.
The tax waiver presumption, which has triggered a rush of inquiries to tax consultants and legal experts in Tokyo and London, has arisen from last month’s announcement by Panasonic that it will move its European headquarters from the UK to the Netherlands.
The announcement was the first by a Japanese non-financial company citing Brexit uncertainty as the motivation. It came amid complaints from Japan’s powerful Keidanren business federation that the UK has been unable to offer a coherent message on the future business environment.
Tax and deal advisers consulted by several large Japanese businesses said clients had approached them for advice on the assumption Panasonic had tacit agreement from authorities that, given the lack of clarity on Brexit, it could make its move without incurring potentially heavy liabilities at home arising from Tokyo’s anti-tax haven rules.
They said inquiries have come from companies in industries including manufacturing, retail and pharmaceuticals.
“The conventional wisdom before Panasonic’s move was that these restructurings were not friendly from a Japanese tax perspective, but that now seems to have changed,” said one tax expert based in Tokyo.
Japan’s tax authorities declined to confirm any such arrangement.
If such an exemption were available, said consultants, it could be of great appeal to Japanese companies eager to restructure their European operations — partly because of the uncertainties surrounding Brexit, but also because of the UK’s declining corporate tax rate.
Britain’s corporation tax is less than 20 per cent and due to drop further in 2020, well below Japan’s corporate tax rate of just over 30 per cent. That could present Japanese companies, especially those with financing or supply chain hubs based in the UK, with liabilities imposed by Tokyo on companies judged to be exploiting tax havens.
Panasonic said at the time that it was making the headquarters move in anticipation that a “no deal” Brexit could result in “potential fiscal obstacles by the application of different rules and regulations between the UK and EU”.
For many Japanese companies, the same concerns have crystallised their desire to reorganise their businesses and have European subsidiaries controlled by operations outside the UK. But the potential Japanese anti-tax haven liability on the capital gains from an EU-based merger involving a UK subsidiary has been a large obstacle.
Given the potential tax impact, companies with subsidiaries in the UK reckon that Panasonic must have acted on the understanding that the deal will be treated favourably.
An official in the corporate tax division of Japan’s Ministry of Finance said that because each country within the EU had a different tax system, it was impossible for Japan to treat it as a single country with regard to cross-border mergers.
However, experts said it may be possible to argue for an interpretation under which a transaction is treated as a purely domestic merger.
Panasonic said it was handling the headquarters move in line with tax regulation. The group does not expect to incur a tax haven-related liability but added that it did not think the authorities’ decision would be affected by Brexit, according to one person familiar with Panasonic’s plan.
Additional reporting by Robin Harding