HICL Infrastructure Company has followed in the steps of rival investment trust 3i Infrastructure by moving its business from the Channel Islands to the UK as an OECD tax regime starts to bite.
In its interim results for the six months to 30 September, the board said it would be transferring the portfolio from Guernsey into a new UK plc through a scheme of arrangement by the end of the first quarter next year.
HICL said the decision comes following discussion of domicile in the company’s September 2017 interim results, its March 2018 annual results in May 2018, and an informal consultation with a number of institutional shareholders.
If the proposal is approved by shareholders, it is expected to complete on 31 March 2019 or shortly thereafter. Shareholders will be given one share in the new company for each share that they hold in HICL.
Speaking to Portfolio Adviser, Harry Seekings, co-head of infrastructure at HICL’s investment adviser InfraRed Capital, said: “We think a move such as this will position the company well as the cross-border tax landscape continues to evolve so that the main driver of this is the potential for future tax risk.”
The move comes after the OECD announced a project to tackle tax base erosion and profit shifting (Beps), first published in 2013, which aims to address perceived flaws in international tax rules. These flaws include deficiencies in certain domestic anti-tax avoidance provisions and differences in the thousands of bilateral tax treaties that are currently in force. The OECD also identified issues in relation to the lack of information sharing between some national tax authorities.
‘The right way to do this’
Seekings said that conceptually the move aligns HICL’s domicile with the residency of the majority of its investors – about 90% – and with the majority of the assets in the portfolio which “feels to us like the right way to do this”.
“We have not just changed our tax reporting jurisdiction, we decided that the best outcome is to align the company’s own residence with where it is filing its tax returns,” he said.
“Just to be clear, we are not just changing where we report our tax, we are, through a scheme of arrangement, creating a new UK plc and transferring the HICL portfolio into a new UK listed entity.
“If we were creating HICL today, it would be a UK plc, which is why we are taking this route.”
Earlier this month, another infrastructure investment trust, 3i Infrastructure, announced that it was moving its management and tax residence from Jersey to the UK to address the Beps measures. It said the move would leave it with a one-off cost of £500,000.
Seekings said HICL will say more about the cost of transfer and give further detail of the proposal when it publishes its extraordinary general meeting (EGM) circular in the first quarter of next year.
Performance ahead of expectations
Elsewhere, HICL reported that NAV per share increased by 6.8p over the period to 156.4p, a total annualised return of about 15%.
The company said it is on target to deliver aggregate dividends of 8.05p per share for the current financial year and reaffirmed the 8.25p per share target for the next financial year, ending 31 March 2020.
It also received a £10.1m writeback from a partial reversal of discount rate changes on projects impacted by Carillion’s insolvency. In addition, it said six of the 10 affected projects where Carillion was previously the facilities management contractor have been successfully transferred to long-term arrangements with financially stable counterparties.
Seekings said: “It has been a strong performance from the company, you can see that from the total return. In part that has been things like the proceeds from disposals. There has also been a writeback of some of our provision for Carillion. Even stripping out those one-off items, performance of the portfolio has been ahead of expectations.”
