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Insurance Post 8 September 2011
With Lancashire set to move its tax residence to the UK, Amy Ellis looks at proposed reforms to the controlled foreign companies rules and asks whether other insurers may follow suit.
The trend of insurers redomiciling from the UK to other more tax-friendly jurisdictions, such as Bermuda or Ireland, is nothing new. The news on 27 July, therefore, that Lancashire — which has been based in Bermuda since its inception in 2005 and has both UK and Bermuda-based insurance subsidiaries — was set to buck this trend and move to the UK looked, on the surface at least, significant.
And the reason it has decided to move its tax residence from low-tax Bermuda? It has been attracted by proposed reforms to the UK's controlled foreign companies rules on the taxation of profits earned overseas.
Wider government plan
The planned changes to the CFC regime, unveiled in March, are part of a wider government policy to make Britain's tax system the most competitive in the G20 group of countries. But how did the UK get into the position where companies have been fleeing its shores and relocating to lower tax regimes over the past decade?
According to Richard Asquith, head of tax at TMF Group, the UK was "cat napping" during the late 1990s and the early part of the last decade in terms of how competitive it was for tax.
"Back in the 1990s the UK was a very good destination for tax reasons, but we sat on our laurels and other territories caught up and cut their corporation tax rates," he explained. "We started to tax income all over the place and corporate taxes are obviously a lot higher in the UK than in Bermuda."
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