Recent UK changes have prompted some firms to consider decamping to the Republic, writes Vanessa Houlder

UK COMPANIES have been threatening to decamp to Ireland on and off for the best part of a decade.

The threat first emerged from Vodafone in 2000, during an argument over tax rules for international companies. Since then the CBI employers' organisation has repeatedly warned the treasury companies were tiring of the complexity, instability and scale of the UK tax burden.

But sceptics could dismiss the complaints as sabre-rattling. There were a few examples of relocations in 2005 and 2006, including Shell, Hiscox, Colt Telecom and Experian, but they were all triggered by big changes in their businesses. Of the four, only Experian moved to Ireland.

The small number seemed to underline the difficulties of relocating to a low-tax jurisdiction. It involved significant disruption for management and shareholders.

Sudden moves by Shire, the pharmaceutical company, and UBM, the media company, have undermined the belief that companies would move tax residency only as part of a big restructuring.

Both companies said their decision to become tax-resident in Ireland had no implications for strategy.

So what has changed? Although Ireland has recently brought in changes to its holding company legislation to make it a more attractive location for multinational head offices, the significant changes have been in the UK.

The recent CBI taskforce on tax pointed out that "the traditional reasons for maintaining a corporate headquarters in the UK may become weaker over time", including the mobility of corporate decision-making and the internationalisation of company ownership.

The most striking change has been a relaxation of the requirement that FTSE companies be incorporated in Britain. This had previously been a deterrent to emigration because UK-incorporated companies are subject to British tax rules. But its relevance has faded since Party Gaming, the online poker company, showed it was possible to join the FTSE 100 index despite being incorporated in Gibraltar.

Another big disincentive to moving has been concern for shareholders. The absence of withholding taxes in the UK remains an important advantage. But British shareholders will, from this month, be able to make use of dividend tax credits from foreign companies.

Companies have also been deterred by the capital gains tax and legal complications of transferring subsidiaries to a new holding company in a different jurisdiction. These often led companies to cut their tax bills by making their supply chain more efficient and ensuring that more profits were earned in low-tax jurisdictions.

This practice used to be seen as a way of getting the advantages of lower tax with minimum upheaval. But Revenue & Customs has become increasingly willing to challenge the savings from this sort of restructuring.

However, relocating for tax reasons remains a big step. If the directors live and work in Britain, the Revenue is unlikely to be convinced that it has genuinely switched its decision-making to the new location. Rupert Shiers, a partner of McGrigors, said: "If the directors [ were] only flying in for board meetings, the Revenue would question whether that was really where the decisions were made."

However, dissatisfaction among UK companies with the regulatory environment is growing.

International Power is considering moving its corporate headquarters away from the UK because of looming tax reforms. In addition, two more companies, Aegis and ITV, are watching developments. This follow hints that AstraZeneca, GlaxoSmithKline and WPP are also contemplating moving their tax domicile. The treasury's proposed reforms of the way it taxes companies' foreign profits have fanned the flames.

International Power, which owns power stations in 20 countries and makes most of its profits outside the UK, is based in London. But it is looking at relocating to countries including Ireland and Switzerland in order to pay less tax.

The company said: "A significant proportion of our earnings are derived from outside the UK and therefore, like many UK multinational companies, we are considering the most appropriate financing and tax structure for the business, but we have not made any decisions at this stage."

Of the 79 FTSE 100 companies surveyed by the Financial Times, 54 either said they had no plans to relocate their headquarters from the UK, or explicitly ruled out such a move. A further 10 privately said they were not contemplating a switch.

Many - particularly those with "British" in their name - were emphatic. British Airways, the flag carrier, said: "We are staying put." BP said: "We would not do that." Unsurprisingly, the London Stock Exchange said that it had no plans to leave the UK.

Others, however, were more ambivalent. Two companies would not be drawn on whether they had plans to move their domicile: Diageo, the drinks group, which owns Dublin-based Guinness, and Man Group, the world's biggest listed hedge fund manager.

There is no suggestion that these companies are mulling a defection from the UK. But their reticence serves to remind policymakers of vulnerable sectors.

AstraZeneca refused earlier this week to rule out relocating its headquarters for tax purposes.

The Anglo-Swedish pharmaceutical group said it was "engaged in ongoing constructive dialogue" with the government on taxation of foreign profits. Simon Lowth, finance director, said: "The board is obliged to consider all potential enhancements to shareholder value, corporate structure group domicile being one element . . . but as yet we don't have any formal plans to change the existing structure."

In a further indication of particular anxiety about the proposed changes in the pharmaceutical sector - whose overseas intellectual property might face greater scrutiny from Revenue & Customs under the plans - GSK joined the chorus.

"We have no plans at present to relocate our headquarters for tax reasons," the company said. "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 who have headquarters here."

Other sectors with significant amounts of intellectual property that could be affected by the changes include media and consumer-product companies.

ITV - among the companies that have not categorically rejected such a move - said: "We have very different geographic revenue and profit derivation than UBM and we will watch the position as it develops."

Robert Lerwill, chief executive of Aegis, the advertising group, added: "If there are ways to get better shareholder value through change of domicile, [ companies] will have to look at it." WPP, Sir Martin Sorrell's advertising group, warned this week it might relocate its domicile, depending on how the treasury's plans evolved.

Six of the FTSE 100 companies, such as Royal Dutch Shell, Experian and Antofagasta, already have all or part of their headquarters abroad for operational reasons. Xstrata is domiciled in Zug, Switzerland, for tax purposes.

Highlighting another area of concern for the City, Lord Levene, chairman of Lloyd's of London, said simple changes to the timing of taxation for insurance companies could prevent further defections to low-tax Bermuda.

He said he was lobbying the treasury, warning that "unless someone does something on the tax front, this slow seepage will continue".