A SENIOR HBSC official has admitted that the UK may no longer be an attractive place to be based for tax purposes, raising the possibility that the world's second largest bank could move its head office to another country, reports the Guardian.
It says HSBC moved its headquarters and tax domicile to the UK from Hong Kong in 1993 as a condition of its takeover of the troubled Midland bank. It pays more than £370m into the chancellor's coffers each year. But the international nature of its business and the jet-setting tendencies of its top executives have regularly provoked speculation about the bank's long-term plans.
The bank makes no secret of the fact that it reviews the location of its head office every three years but has so far concluded it should stay in the UK, illustrated by the construction of a new tower in London's docklands.
The next review is expected in six months' time and will be closely watched by international companies.
In a speech last week, Chris Spooner, head of financial planning and tax at HSBC, suggested that the issue of the bank's tax domicile was back on the agenda.
"The UK used to be a good place to be for purely tax reasons," he said. "I am not sure if that is the case any more.
"HSBC pays a large amount of tax and we are the ones who decide who gets it. We take the competitive environment seriously and there are others like us."
The comments first appeared in Accountancy Age magazine after a speech given by Spooner at a Chartered Institute of Taxation conference in London.
HSBC is likely to be one of the 10 biggest tax payers in the country and its tax bill is the main criterion when it decides where to be based, along with other issues such as regulation, transport and quality of life.
HSBC's senior executives have not tried to hide their irritation about the regulatory environment, particularly following changes brought in after the Cruickshank review of the industry. At the bank's annual general meeting in 2002, the then chairman Sir John Bond told shareholders of the bank's concerns that new regulations were not in their interests or those of its customers.
But speculation about HSBC's intentions has escalated after last month's ruling from the European Court of Justice that seemed to clear the way for companies wanting to take advantage of lower tax rates in some EU states. In a case against Cadbury Schweppes, the European court concluded it was legal for companies to exploit tax differentials as long as the employees were carrying out real work.
A number of Lloyd's of London insurance brokers have moved their domiciles recently.
The European Central Bank has raised interest rates a quarter point to 3.25% and signalled a further rise in December, despite fears that monetary overkill could smother Europe's fragile expansion and cause a sharp slide in global asset prices, reports the Telegraph.
It says Jean-Claude Trichet, the ECB's president, warned of "serious risks" to price stability even though inflation dropped sharply to 1.8% last month from highs of 2.5% in June. "Further withdrawal of monetary policy is warranted. Money and credit growth are strong and liquidity in the euro area is ample by all plausible measures," he said.
The ECB is alarmed by property booms in Spain, Ireland and parts of France, fearing credit growth running at 11.9% is stoking up inflationary pressures.
The latest wage deals in German industry have seen rises of 3.8%, the highest in a decade. "We have a compass, we have a needle in our compass. It is price stability," Trichet said.
The rate rise comes despite an increase in euro-zone unemployment to 7.9% in August, the first move up in over four years.
Joachim Fels, Morgan Stanley's credit chief, said there was a mounting risk that the ECB would over-tighten, with serious spill-over effects for the rest of the world. "The ECB's easy stance has supported the euro economy, asset markets, and the global liquidity cycle for no less than five years," he said.
"The impending return to monetary neutrality in Europe may well turn out to have more dire consequences for the economy and global asset markets than generally assumed," he said.
Fels said the shock could be similar to the effect of America's shift to "restrictive" rates this spring, which set off a worldwide slide in asset prices. "A similar shiver may well go through the system once it becomes clear that the next provider of excess liquidity – the ECB – has turned off the tap," he said.
Trichet hinted yesterday that the ECB was having to grapple with incipient stagflation", warning that inflation would remain stubbornly above the ECB's ceiling of 2% well into 2007 despite "downside" risks to growth.
Bernard Connolly, global strategist for AIG, said the ECB was in effect setting interest rate policy to head off incipient inflation in Germany, obeying an implicit contract built into Europe's monetary union that German price stability must never be sacrificed.
The result is a long-term risk of "recession, deflation and default" for the Club Med bloc of Spain, Italy, Portugal and Greece. There are increasingly ominous signs of trouble in France as well.IFAonline
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