A UK fintech company’s decision to shift its main stock listing to the US signifies another setback for the London market, coupled with new tax implications in a US spending bill that could worsen the situation. Section 899 of this bill, which passed the House in May, targets foreign companies based in nations with what are deemed “unfair foreign taxes.” Experts believe this could encourage more European companies to make the leap across the Atlantic. The section introduces retaliatory tax measures against entities in countries with taxes such as the Digital Services Tax and the OECD’s minimum tax guidelines. This affects many countries, including most in the EU, the UK, Canada, Australia, Switzerland, and others. For publicly traded companies, it brings a new withholding tax on US-source income for foreign-owned entities with over 50% non-US ownership. These taxes start at 5% and could rise to 20% annually, on top of existing tax obligations that vary by country and treaty. Goldman Sachs analysts project that this could impact revenues for the Stoxx Europe 600 Index by as much as 2% in the first year, extending to 2% over four years.
So, how can European firms navigate Section 899? Wall Street Bank suggests relocating to the US as one potential strategy if the bill becomes law. According to Goldman, being listed in the US could attract more American investors, prompting companies to reduce their non-US ownership below that critical 50% threshold, thus evading Section 899. Notably, firms like Experian and Hikma Pharmaceuticals—having significant US shareholding—might consider this approach. However, tax experts caution that circumventing the effects of Section 899 is more complex than merely relisting in the US for investor acquisition. A senior executive from a large European company, who preferred to remain anonymous, expressed uncertainty about whether just a listing would suffice. They pointed out that the bill incorporates specific criteria for determining US ownership involving public entities, hinting that if a company falls under the Section 899 tax umbrella, it complicates things.
This executive raised concerns about whether companies could accurately identify beneficial owners or those who significantly control the business due to the tax bill’s “look-through” mandate. Others have noted that if European governments remove what Trump termed “unfair foreign tax” policies, companies could be exempt from Section 899. CNBC has highlighted potential changes in capital structures to lessen the impact of this section, suggesting that such adjustments might align with corporate relocations. European and UK businesses have increasingly felt disadvantaged in their home markets, leading to a wave of acquisitions and relocations, with many European stocks justifying their moves away from the London market. According to LSEG data, London continues to slide down the list of major tech hubs. Expectations are mounting that this trend will continue, particularly as early predictions suggest the capital may face challenges in 2024.
