Here, there and everywhere

EVEN the most industrious executive cannot be in three places at once, but his employer might well be. A number of multinationals have recently opted to split their legal, fiscal and other personalities between various countries. The latest to do so is Fiat. Now that the Italian carmaker is set to gain full control of Chrysler, it is to leave Italy, on paper at least, after 115 years. Its board recently voted to move the parent’s legal domicile to the Netherlands, its tax residence to Britain and its main stockmarket listing to New York. This copies a template Fiat used when its tractor unit was merged with an American rival and spun off as CNH Industrial.

The Netherlands is sometimes chosen as an acceptably neutral jurisdiction when firms from different countries tie the knot but national pride dictates that neither can move to the other’s patch. When New York-based Omnicom and Paris-based Publicis, two advertising giants, announced a union last year, John Wren, Omnicom’s boss, described their proposed Dutch holding structure as “an elegant solution” for “anyone who was troubled” by the question of location. Management will be split between New York and Paris. This type of set-up is not new: Airbus Group (formerly EADS), an aerospace group about which French officials are especially touchy, has long been Dutch-registered, though in practice it is run from Toulouse.

Flexible corporate laws make the Netherlands very attractive as a legal base. They let companies tweak the balance of power between management, the board and shareholders to suit their needs, says Paul Cronheim of De Brauw Blackstone Westbroek, a law firm; and meetings are not needed to approve corporate resolutions. There are few requirements on compensation, or on audit committees. Other attractions include the widespread use of English and a strong professional-services industry. No wonder lawyers say the Netherlands is emerging as Europe’s Delaware. (The tiny state is the legal home of many large American firms, which prize its undemanding laws and sympathetic courts.)

Other Dutch advantages are more controversial—for instance, the ability to issue “loyalty” shares, which confer extra voting rights on long-term shareholders. This is a useful ruse for families which want to avoid dilution of their controlling stakes when undertaking mergers. Thanks to such skewing, Exor, an investment vehicle for Fiat’s founding family (a member of which, John Elkann, is a director of The Economist’s parent company), has an economic interest of 27% in CNH Industrial, but 40% of the votes.

Companies play down tax as a reason for doing the splits, but it usually is one. Fiat’s British tax move is not primarily designed to avoid corporate income tax: carmaking operations in Italy and elsewhere will still pay local taxes on their profits. However, British tax law looks relatively kindly on firms using complex schemes, often involving other low-tax jurisdictions, that allow them to shuffle payments between subsidiaries and thus, legally, to minimise tax bills—ask Starbucks.

A more immediate benefit for Fiat’s shareholders is that Britain, unlike Italy or the Netherlands, levies no withholding tax on the distribution of dividends from foreign operations. It also imposes lower-than-average taxes on offshore subsidiaries technically controlled from its shores, including those in tax havens. Britain’s double-taxation treaty with America is another lure, since it requires less “substance” (real assets and employees) to justify tax-advantaged holding structures than, for instance, the Dutch-American treaty does.

As a result, some tax experts wonder why Britain isn’t on the list of EU states (Ireland, Luxembourg and the Netherlands) being investigated by Brussels for haven-like policies that potentially breach state-aid rules. The British government retorts that its policies—including a steady cutting of the corporate income-tax rate to 21%—are legitimate forms of competition.

So alluring is the British regime that LyondellBasel, a chemicals giant, became a British rather than a Dutch taxpayer last year. It remains registered for legal purposes in Rotterdam but is said to have just a handful of staff there. (Its main corporate office is in Houston.) Publicis Omnicom has not yet picked a tax domicile. It might plump for Britain, says a spokeswoman.

Last year Noble Corporation, an oil-drilling firm, moved its headquarters and tax residence from Geneva to London (having previously paid its dues in the Cayman Islands and before that America). The company insists the move was “tax-neutral”. It says the main reason for it was to cut travel times for executives visiting operating sites around the world, since they usually had to pass through Heathrow anyway.

Other multinationals that had put their global or regional headquarters in Switzerland over the past decade are now looking to move elsewhere, in part because of the pressure the EU is putting on the country to rewrite its cantonal tax regimes so they do not favour foreign firms over domestic ones. Yahoo, for instance, is shifting a European hub to Ireland, which offers, among other attractions, a corporate tax rate of just 12.5% and juicy tax-arbitrage opportunities for firms with lots of intangible assets whose value can be shuffled between jurisdictions. There are still many multinationals that keep their tax, legal, stockmarket and operational bases in one place, but given the attractions of splitting them, more are likely to do so in future.