City Firm Begins The Bonus Tax Exodus

[Hopeless Romantic]

The great City exodus may be about to begin.

I have learned that Tullett Prebon, one of the largest independent financial trading firms in London, is offering its employees the chance to relocate to its offices in Switzerland, Bahrain and Singapore as a result of the uncertainty caused by last week's Pre-Budget Report (PBR).

Terry Smith, the City heavyweight who is Tullett Prebon's chief executive, emailed senior managers at the firm on Friday to say that the company's board had taken the decision to help facilitate requests from staff to relocate to other offices "with more certain taxation regimes".

"It is not clear how if at all the Chancellor's announcement yesterday will affect us, but his proposals regarding the way that bonuses are to be treated this financial year, coupled with the explicit refusal to guarantee that similar "one off" taxes will not be imposed next year and in subsequent years, has caused a number of you to once again raise the matter of relocation out of the United Kingdom," the email said.

This is big news - and represents the most potent signal to date of an imminent exodus from the City amid growing Government hostility towards the financial services sector.

Already, all of the major investment banks operating in London have begun exploring whether it makes sense to relocate staff to other financial centres because of the Chancellor's imposition of a 50pc tax on all bonus payments of more than £25,000.

I also understand that Tullett is to explore the possibility of relocating its corporate headquarters, and that Singapore is among the likely new destinations as a consequence of Asia's growing clout in global financial markets.

Tullett alone pays tens of millions of pounds in UK corporate taxes every year, while the 750-or-so traders (who have been requesting the opportunity to relocate for some time) probably pay far more in income and other taxes here. So it's not hard to see how a few more relocations of this scale would suddenly dwarf the revenue the Treasury will rake in from the bonus tax - even if that's several times the projected £500m figure.

Remember that Smith and his colleagues in the Tullett boardroom have a legal obligation to act in the interests of the firm's shareholders - and not to offer employees this opportunity would be to risk the defection of Tullett staff to rivals.

It's not even clear whether Tullett falls into the bonus tax net, but the uncertainty has clearly proved to be the tipping point for Smith.

There's probably only one paper-thin silver lining here for the Government, which is that Tullett Prebon isn't thinking of going to New York or Paris.

In reality, it could be the beginning of a disastrous (in fiscal terms) stampede for Britain's borders.

http://blogs.news.sky.com/kleinman/Post:de1b0eef-3007-41e4-8c29-e505d85edc70

[Anarcho-Socialist]

1. I doubt the financial sector can afford to turn its back on the 5th largest economy

[Hopeless Romantic]

2. Time will tell I guess, but the Germans seem quite confident

Dec. 12 (Bloomberg) -- Deutsche Bank AG Chief Executive Officer Josef Ackermann said Germany has a “comparative advantage” over other financial hubs because it doesn’t plan to tax bonuses like Britain and France.

“To strengthen the financial hub of Germany I think is a very wise move,” Ackermann said in an interview in Berlin late yesterday.

Ackermann and German Finance Minister Wolfgang Schaeuble said two days ago that German financial institutions including Deutsche Bank, Commerzbank AG and Allianz SE, agreed to uphold the Group of 20’s so-called self-discipline accord, rather than resort to a new tax.

The U.K. government on Dec. 9 announced a one-time 50 percent tax on bonuses of more than 25,000 pounds ($40,800). President Nicolas Sarkozy said Dec. 11 that France will follow suit. France may tax 2009 bonuses exceeding 27,000 euros ($39,800), two French government officials said Dec. 10.

The German guidelines are based on those suggested in September by the Basel, Switzerland-based Financial Stability Board, which discourage bonus guarantees longer than one year, encourage companies to defer bonuses for senior executives and other key employees and enable pay to be clawed back if losses occur at a later date.

Britain, France

Politicians in Europe are trying to assuage voter anger after governments provided $5.3 trillion of aid to banks during the credit crisis. Britain and France are the first nations since the outbreak of the crisis to target bonuses with a tax. German Chancellor Angela Merkel said on Dec. 11 she won’t seek a bonus tax in part because it might be unconstitutional.

Joachim Faber, CEO of Allianz Global Investors, said the crackdown on compensation by France and U.K. contravened the call of the G-20 nations to ensure regulations are imposed in lockstep across borders.

“We have to make sure that we act in a coordinated way,” Faber said at a conference in Berlin today. “It seems to me a little disturbing on compensation. It looks like a new field of competition has opened.”

Morgan Stanley Asia Chairman Stephen Roach said the “blame game” needs to be shared and not focused on bankers. Regulators, central banks and investors all “need to take some responsibility,” he told Bloomberg Television in Berlin. Taxing the pay of bankers “doesn’t convey a sense of shared responsibility.”

http://www.bloomberg.com/apps/news?pid=20601109&sid=aLP_cZ3zUNw4&pos=10

[TheBigotBasher]

3. These taxes would only have worked on an international basis.

As soon as Washington and Bonn said no, all it would do is damage the City. Pretty much the same as the Tory Popuist Nom Dom London Tax, which now looks set to raise only £150 million.