UK tax buildings on offshore leaseback

The irony of it, George Soros, Mapeley

Monday, 23 September, 2002, 08:46 GMT 09:46 UK

Revenue sell-off to tax haven firm

By Stefan Armbruster, BBC News Online business reporter

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" said Robin Priest, Mapeley Limited

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

"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" said Robin Priest, Mapeley Limited.

"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.


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