Eurobonds scandal: The high street giants avoiding millions in tax

In the third part of our investigation into the biggest corporations in Britain, we turn to the stores that dominate our town centres

Many of Britain's best-known high street chains are avoiding millions of pounds in tax through the controversial Eurobonds scheme.

Food chains including Nando's, Pizza Express, Café Rouge, Strada and Pret A Manger have cut their taxable profits by borrowing from their owners through the Channel Islands Stock Exchange. High street retailers doing the same include BHS, the electronics retailer Maplin, Office and Pets At Home. The revelations form the third part of an investigation by Corporate Watch and The Independent into major UK companies using the quoted Eurobond exemption, a regulatory loophole the Government knows about but has decided not to close.

Click image above to enlarge graphic

David Cameron is expected to be questioned today in Parliament about the scheme and HMRC's failure to tackle it. Instead of putting their money in the shares of the companies they buy, the owners - mostly private equity funds - lend it instead. The interest on the loans cuts the UK companies' taxable income each year and the exemption - triggered because the loans are listed on the Channel Islands Stock Exchange - means the interest goes to the owners tax free. Without this loophole, HMRC could deduct a 20 per cent "withholding tax" from payments overseas and the overall tax saving would be greatly reduced. Yesterday The Independent reported how Camelot had avoided tax using this method and how HMRC was lobbied by financial firms to keep the loophole open.

Murray Worthy, a tax campaigner with War on Want, said: "This isn't just a niche issue that's being used by a handful of companies. We've seen how angry people are about the ease with which these companies can avoid paying their fair share, [and] the only reason this is happening is because of the influence of big business on the Government's tax rules." Gondola Group - which owns Pizza Express, Zizzi and Ask - has avoided as much as £77m in UK corporation tax since it was bought by the Cinven private equity fund in 2006. Cinven loaned Gondola more than £300m at a 12.5 per cent interest rate but only invested £8m in equity. Instead of receiving the interest payments on the loans every year, Cinven has allowed it to accrue on the debt, compounding the amount taken off Gondola's profits every year. When Cinven sells the restaurants, which it is reportedly considering, it can receive the £276.8m it is owed tax free.

Gondola's UK corporation tax bill last year was only £200,000, after an operating profit of £39m. In 2011, it recorded a tax credit of £5.8m. Cinven also owns Spire Hospitals and Partnerships in Care - healthcare companies that The Independent revealed earlier this week were using the same arrangement. Pizza Express and Zizzi have previously been criticised for their poor pay. Pizza Express sacked a waiter who revealed the company kept 8 per cent of tips as an "admin fee" in 2009 while in the same year Zizzi staff were paid £4.25 per hour before tips were added. Gondola did not give more up-to-date information on its pay.

Tragus Group, which owns the Café  Rouge, Strada and Bella Italia chains, could have avoided more than £13m in tax after accruing £47.7m in interest on 17 per cent Eurobonds it owes to the Blackstone private equity fund, which owns the group through a Cayman Islands subsidiary.

The electronics retailer Maplin accrued interest of £68.9m in 2012 on borrowings from its owners, Montagu private equity. However, a spokesman argued that the majority of the interest cannot be taken off its tax bill following negotiations with HMRC. Interest of £361m has accrued over the previous five years, on top of the £137.5m it originally borrowed from Montagu at 16.5 per cent. It is unclear how much tax has been avoided because Maplin would not disclose the figures involved - or how long the interest had been disallowable for, but the potential savings could still be in the tens of millions.

Sir Philip Green's wife, Lady Green, brought BHS into the family's Arcadia group, which also owns Top Shop, by investing through the Channel Islands Stock Exchange in 2009. The group deducted interest of £13.5m from its taxable profits in 2012, avoiding £3m.

Pret A Manger owed £237.9m to its owner, the Bridgepoint private equity fund, at the end of 2012. The loans were listed with at a 12 per cent interest rate but a spokeswoman told The Independent that they were only allowed to deduct 45 per cent of the interest from their income with HMRC's approval. They have since repaid £150m of the loans.  

Tim Hames, director general of the British Private Equity and Venture Capital Association, said: "The retail sector is one which has suffered deeply since the financial crisis. But there are at last signs of a genuine recovery, much of it brought about by putting investment to work and creating value."

A spokesman for BHS and Arcadia said the figures were accurate but gave no further comment. Tragus and Silverfleet Capital, which own Office, said they complied fully with all relevant legislation. Pets At Home said the company was acting within the law and had expanded its business.

Nando's said that the loans were the most efficient way to accelerate its growth in Britain. "Nando's Group Holdings Ltd incurred corporation tax of £10.4m on an operating profit of £41.9m in the year ending February 2012. Nando's growth has been funded by a combination of equity and debt," a spokesman said.

Gondola said it "works closely with HMRC to ensure that we pay the right taxes. Our structure is in line with a significant proportion of UK companies, in the high street and beyond.  We are also a substantial contributor to the UK, having paid £200m in taxes in the last three years, created 3,200 British jobs and invested £300m in the last 6 years".

A spokeswoman for Pret did not dispute the figures but said it was "misleading" to call it tax avoidance. She said: "Pret pays a fair amount of tax given the business's profit levels and its continued investment in growth, building more shops and creating more jobs. Our 2012 operating profits before interest were £22.5m and we paid £7.5m in tax."

An HMRC spokesman said the department did not recognise that £500m was being lost: "The rules on cross-border withholding tax are being looked at as part of a package of work on the international tax rules."

Arts & Entertainment
A stranger calls: Martin Freeman in ‘Fargo’
tvReview: New 10-part series brims with characters and stories

Arts & Entertainment
Shaun Evans as Endeavour interviews a prisoner as he tries to get to the bottom of a police cover up
Review: Second series comes to close with startling tale of police corruption and child abuse
Sport
Raheem Sterling and Luis Suarez celebrate during Liverpool's game with Norwich
football Another hurdle is out of the way for Brendan Rodgers' side
Arts & Entertainment
Schwarzenegger winning Mr. Universe 1969
arts + entsCan you guess the celebrity from these British Pathe News clips?
VIDEO
Have you tried new the Independent Digital Edition iPad app?
News
Portrait of Queen Elizabeth-II by David Bailey which has been released to mark her 88th birthday
peoplePortrait released to mark monarch's 88th birthday
Arts & Entertainment
The star of the sitcom ‘Miranda’ is hugely popular with mainstream audiences
TVMiranda Hart lined up for ‘Generation Game’ revival
Life & Style
The writer, Gerda Saunders, with her mother, who also suffered with dementia before her death
healthGerda Saunders on the most formidable effect of her dementia
Sport
Manchester United manager David Moyes looks on during his side's defeat to Everton
footballBaines and Mirallas score against United as Everton keep alive hopes of a top-four finish
Sport
Tour de France 2014Sir Rodney Walker on organising the UK stages of this year’s race
Arts & Entertainment
Jessica Brown Findlay as Mary Yellan in ‘Jamaica Inn’
TVJessica Brown Findlay on playing the spirited heroine of Jamaica Inn
News
YouTube clocks up more than a billion users a month
mediaEuropean rival Dailymotion certainly thinks so
Arts & Entertainment
The original design with Charles' face clearly visible, which is on display around the capital
arts + ents
Arts & Entertainment
‘Self-Portrait Worshipping Christ’ (c943-57) by St Dunstan
books How British artists perfected the art of the self-portrait
News
People
News
Sir Cliff Richard is to release his hundredth album at age 72
PEOPLE
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Geography Teacher

£130 - £140 per day: Randstad Education Ilford: Secondary Geography Teacher Lo...

Do you want to work in Education?

£55 - £70 per day: Randstad Education Cheshire: Are you a dynamic and energeti...

SEN Teaching Assistant

Negotiable: Randstad Education Group: SEN TAs, LSAs and Support Workers needed...

Private Client Senior Manager - Sheffield

£50000 - £60000 per annum: Pro-Recruitment Group: The Sheffield office of this...

Day In a Page

Rubin ‘Hurricane’ Carter: The man who could have been champion of the world - and the Bob Dylan song that immortalised him

The man who could have been champion of the world

Rubin ‘Hurricane’ Carter and the Bob Dylan song that immortalised him
Didn’t she do well?

Didn’t she do well?

Miranda Hart lined up for ‘Generation Game’ revival
The Middle East we must confront in the future will be a Mafiastan ruled by money

The Middle East we must confront in the future will be a Mafiastan ruled by money

In Iraq, mafiosi already run almost the entire oil output of the south of the country
Before they were famous

Before they were famous

Can you guess the celebrity from these British Pathe News clips?
Martin Freeman’s casting in Fargo is genius

Martin Freeman’s casting in Fargo is a stroke of genius

Series is brimming with characters and stories all its own
How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players