On 28 April 2014, Pfizer Inc. announced that it had made a preliminary and conditional offer to the Board of AstraZeneca PLC for a take-over valued at £58.8 billion. This offer was rejected by AstraZeneca and, on 2 May, Pfizer announced that it had submitted a revised proposal to AstraZeneca valued at £64 billion. This proposal was also rejected by AstraZeneca. One of Pfizer’s expressed motivations for its offer is the enefit of relocating its international headquarters to the UK. Why is this?

Putting aside factors such as the increasing strength of the British economy, its pre-eminent financial, insurance and legal services markets and its position at the centre of global time zones, perhaps the answer lies in the competitiveness of the UK's corporate tax regime when ompared with other leading economies. Not only is the rate of UK corporation tax one of the lowest in the world, but the UK has, as a result of recent reforms, become a very attractive place to locate international holding companies.

Corporation Tax Rate

For the current tax year (ending 31 March 2015) the main rate of corporation tax (for company profits of £1.5 million or more) is 21% and from 1 April 2015 this will reduce to 20%. The top U.S. federal corporate tax rate is 35%, and U.S. state income taxes generally apply as well.

Advantages for International Holding Companies

In summary, advantages include:

• One of the most comprehensive networks of double taxation treaties in the world (which aim to eliminate or reduce withholding tax on dividends, interest and royalties)

• No withholding tax on dividends or interest paid to overseas shareholders

• An exemption from corporation tax on dividends received by a UK holding company from its subsidiaries

• An exemption from corporation tax on gains from the sale of subsidiaries if the company is part of a trading group, and the equity interest is more than 10% and has been held for more than 12 months

• An elective exemption from corporation tax on the profits of foreign branch offices of the UK company

• A beneficial controlled foreign companies regime (which excludes from UK taxation many of the profits of foreign subsidiaries controlled from the UK which would otherwise be imputed to the UK parent)

• The ability for U.S. groups to claim consortium relief (i.e., surrendering of profits and losses) between their UK joint venture companies

• Access for UK companies to the beneficial "Patent Box" regime, which enables them to apply a reduced corporation tax rate (effectively 10%) to worldwide profits earned from patents and certain other intellectual property rights held and developed by them

• For U.S. executives living in the UK, the possibility to mitigate UK personal income and capital gains taxes under the remittance basis of taxation available to non-domiciled individuals

Transfer Pricing

In relation to certain cross-border agreements and arrangements between parties in the open market (or "at arm's length") goods and services will be bought and sold on commercial terms. Examples include loans, technology transfer and licencing and the provision of administrative or compliance services. Where such agreements and arrangements are between companies in the same group, most countries have developed "transfer pricing" rules to ensure that such connected parties cannot arrange things to minimise the tax burden within their group. UK transfer pricing rules ensure that arm’s-length pricing is substituted for artificial pricing and follow OECD guidelines.

Conclusion

It is reported in the press that "hundreds" of multi-national corporations are currently receiving advice from the Big Four accountancy firms on their relocation to the UK. Although U.S. income tax consequences should also be considered given the increased scrutiny on such relocations by the U.S. taxing authorities, the potential tax savings of a relocation can be significant. For example, such reports rumour that Pfizer could save around $1.4 billion a year by locating its international headquarters in the UK. The reasons are plain to see, and as the UK Chancellor of the Exchequer, George Osborne, said recently, "Let it be heard clearly around the world, from Shanghai to Seattle and from Stuttgart to São Paulo, Britain is open for business."