SOME of the biggest names in British business have told Gordon Brown and Alistair Darling that Britain risks a corporate exodus if Treasury tax proposals on foreign earnings go ahead.

The warning was delivered at Downing Street 10 days ago by a delegation from the Multinational Chairmen’s Group, a secretive body that brings together leaders of some of the most powerful companies in the world.

The delegation included HSBC executive chairman Stephen Green, Vodafone chief executive Arun Sarin, Astra Zeneca chief executive David Brennan, Glaxo Smith Kline chief executive-designate Andrew Witty, BAE Systems chairman Dick Olver, BAT chairman Jan du Plessis, Shell chief executive Jeroen van der Veer and BP chairman Peter Sutherland.

Other top executives have forced home the point in separate encounters with Brown or Darling in recent weeks.

They are up in arms about proposals contained in a little-noticed discussion document issued by the Treasury last June. If implemented, they would change the rules on tax paid by UK groups on dividends from their foreign operations.

Companies could, for example, be liable for UK tax on earnings from intellectual property held offshore, including drug patents, designs and brands.

“The taxman could spread his net a lot wider on foreign income. It’s a repeat of the nondom debacle, this time for business,” said one tax lawyer.

On Monday, Darling announced a surprise review of corporate taxation. On foreign dividends, he said: “We have been working closely with businesses, and, as a result of those discussions, our thinking has developed substantially.”

A separate consultation document on the matter is expected later this year, possibly in July. A senior Whitehall source said the No 10 meeting had been “constructive”.

Those involved in the discussion say the foreign-dividend proposals have given a hard edge to general discontent over UK corporate taxation.

In recent weeks two leading companies, Shire Pharmaceuticals, a FTSE 100 drugs group, and United Business Media, a media and conventions group, have decided to shift their tax domiciles from the UK to Ireland. There were rumours last week that another FTSE 100 group was on the verge of leaving.

A source close to Shire said yesterday that the proposed changes to the foreign-dividend regime had been just one factor in the company’s decision to move offshore.

“The bulk of our income now comes from outside the UK, so it was only natural for us to look at the move,” the source said.

Tax lawyers said uncertainty over the next moves on corporate taxation had also helped to push companies offshore, as had worries over the administrative burden it could create.

Glaxo Smith Kline, Britain’s biggest drugs company, said it had no plans “at present” to move. “However, we believe that the UK business environment has to be realistic so it doesn’t impair our ability to compete globally, and it is important that the government ensures that the UK is an attractive location for companies that have headquarters here,” said Glaxo.

WPP, Astra Zeneca, International Power and Aegis, all companies with significant foreign operations, are understood to be examining the issue.

Astra Zeneca said it was “engaged in constructive dialogue with the government on taxation of foreign profits in order that the issues are fully discussed and understood by the government”.

Tax has been a problem area for Labour in the past 12 months. The government has been criticised over changes to capital-gains tax relief and to nondomicile arrangements, and over the scrapping of the 10p tax band.

The last measure, which nearly triggered a revolt by Labour MPs, was blamed yesterday for contributing to the party’s poor showing in last week’s local elections.

http://business.timesonline.co.uk/tol/business/economics/article3867714.ece