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MPs attack Revenue 'contract with tax avoiders'

14th Jun 2005
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The former chairman of a key committee of MPs has described as "incredible" the Inland Revenue's failure to establish the offshore status of Mapeley, the private sector consortium that acquired most of its properties in a Private Finance Initiative deal agreed four years ago.

The Public Accounts Committee's report examining the deal entered into by HM Customs & Excise and the Revenue, released today (14 June), concluded that "it was a very serious blow indeed for the Inland Revenue to have entered into a contract with tax avoiders".

The committee said that on signing the contract with the two departments, Mapeley transferred the freehold and long-leasehold properties to a company based in Bermuda, a tax haven.

As a result "any capital gains made by Mapeley on the sale of the properties will not be captured under the current UK tax regime".

Mapeley had "always intended" to hold the properties offshore to avoid paying tax, the committee added.

Edward Leigh MP, committee chairman in the last Parliament, said: "In negotiating the STEPS deal, HM Customs & Excise and the Inland Revenue accepted by far the lowest price on the table.

"A potential saving of almost £500m was clearly attractive but there were significant weaknesses in the way the deal was negotiated which should be avoided in future PFI arrangements."

HM Revenue and Customs today welcomed the committee's "constructive findings and recommendations" regarding the deal.

"The department accepts there are lessons to be learned in the way such deals are negotiated in the future and measures have already been put in place to ensure this happens," it said in a statement.

Financial difficulties
Leigh said the low price offered by Mapeley reflected, in part, its desire to get a foothold in the property management business. It left "little room for manoeuvre if the company's fortunes took a turn for the worse, which came to pass".

Mapeley had financial difficulties in the first year of the contract, he added, and the departments found that they "had not looked at possible termination scenarios or developed a fall-back position to ensure business continuity".

He continued: "Matters are still not straight. Four years into the contract there remain outstanding issues and the performance measurement system, vital to any PFI arrangement, has yet to be fully implemented."

However, HMRC said today it has now "satisfactorily resolved the historic claim issues under negotiation" and agreed a new performance measurement system effective from 1 July 2005.

"This provides the necessary basis for successful management of the contract moving forward," it said.

Offshore status
Leigh said much was made of Mapeley's offshore status and "the implications in terms of tax avoidance".

But the savings represented by the Mapeley bid far outweigh the potential tax loss in this case, he said.

"Nonetheless, it is incredible that the Inland Revenue, of all departments, did not during contract negotiations find out more about Mapeley's structure.

"Departments entering PFI arrangements need to know more about whom they're doing business with and ensure that potential losses to the Treasury are taken into account when assessing overall costs and benefits."

The committee said that while the departments knew that Mapeley was owned by shareholders based outside the UK, they did not "clarify the company's tax plans, or find out that it intended to hold the properties offshore until late in the procurement process".

In its report, the committee said the departments took the view that under public procurement law they had no choice but to go ahead with the contract.

It added: "With the benefit of hindsight the Departments said it had been a mistake that the bidding documents had not specified that the properties should be held onshore.

"The Government has since responded to the tax issues raised in this deal by suggesting a new clause for future PFI contracts that limits the ability of contractors to go offshore ... the Departments consider that it remains to be seen how such a clause will work out in practice."

Andrew Goodall
Editor, TaxZone

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By Peterjet
15th Jun 2005 15:51

What is good for the goose must be good for the gander
What is good fo rthe goose must be good for the gander. What is good for these people in authority must be good for everyone else or are these people answerable/accountanble to the MLA. Has anybody reported them to this body for this deal? Being an authorititave body they must be made accountable to us, the tax payers and not only themselves and should be whiter than white. With due respect, they are becoming more and more grey! It would appear that they are a law to themselves. Is that why the NAO has quantified their accounts on so many occassions? I meet one of the IR officers (quite highly placed) not long ago in South London and she advised me that the accounts produced by the IR is totally suspect and highly questionable and went as far as quantify the methodology is totally inaccurate.

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