European Nations Compete for Investment Funds Leaving Britain After Brexit
In an effort to lure in investment funds leaving Britain after Brexit, numerous countries have taken action to attract firms.
The most recent announcement came from France, which claims to be “pledging to slash the tax rate on the cut of profits managers share with their investors, to the chagrin of some local rivals.” To make Paris even more inviting for relocation, France has additional plans to decrease the tax rate on carried interest from 75 percent to 30 percent. Originally, fund managers were required to hold a minimum of 1 percent of fund’s assets, or fulfill other requirements, to secure the 30 percent tax rate. However, fund managers will now be taxed at the fund rate regardless of how much of the fund’s assets they hold. These new policies will take effect in December, and will exclude any new fund created in France.
France, Luxembourg, Ireland, the Netherlands and Germany are competing in order to attract the newcomers into their countries. Luxembourg holds a tax rate on carried interest of 11 percent, Ireland 15 percent, and Germany 28 percent (compared to 30 percent in France). Although Luxembourg may not be a suitable option for companies looking for a large-scale move, Luxembourg does allow company accounts to be filed in three different languages, is specialized in cross-border business, and offers political and economic stability.
Chancellor Angela Merkel of Germany disclosed in early September that Germany will exempt high-earning bankers from parts of its national labor code in order to remain competitive in the race to attract financial service business from the United Kingdom after Brexit. Merkel also underscored her dedication to creating “attractive framework conditions” to lure in workers from London.
Amsterdam has also amped up efforts this summer to attract the entry of British firms by adding another €300,000 to the €1.2 million action fund to cover the costs of entry.
France views the entry of new investment funds into Paris as an opportunity to fuel economic growth and boost funding for local companies, but this may also cause local companies to lose talented employees.
According to CNBC, “one French private equity investor based in London said that France was now ‘on the map’ because of the tax change, especially since British tax changes over recent years have seen bills rise sharply for some long-term private equity residents.”
However, Jean-Sebastien Beslay, partner at Trusteam Finance, condemns France’s actions by describing them as a “distortion of competition.” He added, “To get growth, the government neglects asset managers that have been here for years, with no guarantee the newcomers will settle here for good and will really hire more people.”
Law firms in Europe have been busy advising Britain-based clients thinking of relocating. Odgers Berndtson, the international head-hunting firm, has stated it will be opening an office in Dublin. Barclays will be moving its European hub to Dublin and expanding its number of employees, while Goldman Sachs made the decision last winter to move some of its hedge fund operations staff in the UK to New York. BlackRock, the world’s largest asset management firm, made plans to expand in Paris.
The impacts of Brexit pass beyond the financial services industry. According to British news source Verdict, a recent research by Ukie, a games industry trade body, found that “40 percent of games companies based in the UK were considering relocating after the UK decided to leave the EU. The main reason for this is concern that a loss in international talent from EU countries would create a skill shortage, with 57 percent of respondents saying they employed staff from member states across the union.”
Diageo, a drinks company that manufactures Smirnoff and Circo vodka, is shifting its production from Scotland to Italy and the US. This will result in the loss of 105 jobs in the cities of Fife and Glasgow. Even Smiffy’s, a costume and dress supplier, will shift its head office from England to the Netherlands as the European Union is its biggest trading partner.
Dutch foreign minister Stef Blok commented, “there’s a famous saying by Johann Cruyff: ‘every disadvantage has its advantage.’ In the case of Brexit this means a number of companies are considering or have already decided to leave the UK, and of course we are in the race to welcome them.”