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The Inland Revenue has
confirmed that it sold its estate of more than 600 buildings to a
company based in a tax haven, and admits it wrongly announced the
properties were sold to a UK firm.
The Inland Revenue confirmed its mistake following an investigation by BBC News Online.
Critically, the benefits of the tax position we have are handed back to
the government through a lower charge we make to them every year 
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Robin Priest, Mapeley Limited
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The property firm says the Inland Revenue will be reaping financial benefits from dealing with a tax haven company.
In March 2001, the
Revenue said it signed a private finance initiative (PFI) deal with the
UK-registered Mapeley Limited, transferring to it the "ownership and
management" of the estate.
In reality, though, the
Inland Revenue sold the properties to a Bermuda-based sister company
called Mapeley Steps Limited for £220m, while paying rent to a UK
company called Mapeley Steps Contractors Limited.
"Inland Revenue and
Customs & Excise dealt with Mapeley Limited during the two year
procurement process," the Revenue said in a statement to BBC News
Online.
"The precise contract
structure was revealed fairly late in the procurement process and the
press release incorrectly stated that the contract was awarded to
Mapeley Limited."
"There was no intention to mislead."
All are part of
Bermuda-based Mapeley Holdings Limited, a company ultimately owned by
George Soros and US group Fortress Investment, which describes itself
as an "alternative investment" company.
"Steps" stands for the "strategic transfer of the estate to the private sector".
Tax advantage
The chief executive of
Mapeley Limited, Robin Priest, told BBC News Online he believed the
false announcement was an innocent "error".
Primarolo advises Brown on tax issues
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"Our bid consortium was called Mapeley Limited and they took that from previous press releases," Mr Priest said.
He added the Revenue was fully aware of the cost benefits of dealing with a company based in a tax haven.
"Critically, the benefits
of the tax position we have are handed back to the government through a
lower charge we make to them every year," he said.
Mapeley won the contract over two other bidders.
Rent and service
Annual returns filed by Mapeley Steps Contractors show the Revenue paid it £136m in the last nine months of 2001.
The company reported a loss of £12m in 2001 after it transferred £81m to Bermuda-based Mapeley Steps for the master lease.
Under the terms of the Steps contract, if Mapeley were to engage in any form of tax dodgery we would lose the contract
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Robin Priest, Mapeley Limited
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"We did not simply buy the assets from the government but also very
substantial leasehold liabilities from the government," explained Mr
Priest.
"The overwhelming majority of (the rent paid) goes to third party landlords," he insisted.
How much Mapeley charges
the Revenue in rent and service costs is not known, because commercial
agreements between the government and the private sector are
confidential.
Further details of the
contract cannot be uncovered from Mapeley Steps' accounts, because the
firm is not UK registered and neither files financial reports nor does
it pay tax in the UK.
The accounts of Mapeley Limited, which manages the estate, show it made a loss in 2001, and therefore also paid no tax.
Property deals
Under the terms of the
Steps deal, the contractor is required to provide serviced
accommodation for a period of 20 years, after which it retains the
properties.
"It's not that we won't
pay tax, what we have done is sought to mitigate our capital gains
position because this is a very tight contract on an operating basis so
most of the value for us is in 20 years time," Mr Priest said.
In June, the Chief
Secretary of the Treasury Dawn Primarolo, who also heads the Revenue,
told Parliament the deal would be cheaper than keeping the estate in
government hands.
"An affordability
exercise conducted as part of the Steps negotiations showed that the
successful Mapeley bid was more than £5m cheaper than the existing
accommodation arrangements," she said.
But Mr Priest said the
actual figure is "a lot more than that" and expects the government to
save over £500m in today's money over the course of the contract.
The National Audit Office is now expected to examine the deal.
"Under the terms of the
Steps contract, if Mapeley were to engage in any form of tax dodgery we
would lose the contract," Mr Priest said.
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