* UK has cut corporate tax rate to 20 pct from 30 pct
* Fiat Industrial paid 36 pct effective rate in Italy in 2012
* Government opposes move
By Jennifer Clark
MILAN, May 21 Italy-based truck and tractor maker Fiat Industrial plans to lower its tax bill by shifting its residence to Britain after a planned merger with unit CNH, a move that drew angry reactions from politicians and unions on its home turf.
The criticism tapped into a widening debate on corporate tax avoidance which has become a hot political topic in some western countries in recent months.
A string of U.S. multinationals including Apple, Google, Amazon.com and Starbucks have come under fierce attack over how they minimise tax payments on billions of dollars of overseas sales.
According to U.S. stock exchange regulatory filings dated May 14 seen by Reuters, Fiat Industrial aims to be treated as a UK resident company after the merger, which should be completed by the third quarter of this year.
The Italian government, scrambling to find new revenue to cut an unpopular real estate tax amid a grinding recession, responded coolly.
"Obviously the government is not in favour of choosing tax residence based on convenience," Treasury Undersecretary Stefano Fassina told reporters.
Infrastructure Minister Maurizio Lupi said the plan was "worrying".
Fiat Industrial paid 536 million euros ($689 million) in tax last year at an effective rate of 36 percent - plus 28 million in regional taxes - on a net profit of 921 million.
The UK has been cutting its corporate tax rate sharply in recent years, from 30 percent in 2007 to a proposed 20 percent rate in 2015.
It has also relaxed some tax rules to encourage foreign firms to headquarter themselves in Britain where they will only be taxed on profit generated locally and not overseas earnings.
At the same time, the UK government has criticised international companies that make billions of pounds of sales in Britain, but pay little tax because they are based elsewhere.
Fiat Industrial plans to merge with CNH then fold both companies into a new group provisionally called FI CBM Holdings N.V. with a primary listing on the New York Stock Exchange.
FI CBM "intends to operate in a manner to be treated as resident in the United Kingdom for tax purposes," the company said in its U.S. regulatory filings.
FI CBM "is likely to be regarded as having become UK-resident" if most board meetings are held in the UK, and if "at least some of the directors" of the company along with support staff are based in the UK, the filings said. The company's principal executive offices are currently located in Basildon in eastern England, where it owns a large tractor factory.
Fiat Industrial's sister company Fiat is also examining a U.S. listing after a planned merger with U.S. automaker Chrysler, in which it owns a majority stake.
A decision on where the merged entity will be headquartered will be extremely sensitive politically, given Fiat's status as Italy's largest private sector employer.
Labor union Fiom blasted Fiat Industrial's plan and urged the government "to stop the process of moving Fiat's headquarters and its activities outside of Italy."