The Eurobond tax scandal: HS1 rail link accused of ‘outrageous’ tax avoidance
The final part of our investigation reveals the transport firms getting plenty of mileage out of the Eurobond loophole
The costly Channel Tunnel rail link, Gatwick Airport and the disastrous M6 toll road are amongst the transport companies using a legal tax avoidance scheme which allows them to avoid millions in tax.
The revelations are the fifth part of a joint investigation by Corporate Watch and The Independent into the misuse of the quoted Eurobond exemption. Companies cut their UK taxable income by racking up interest on debt from their owners via the Channel Island Stock Exchange, then send the interest out of the UK tax-free. Without the exemption, 20 per cent of the payments could be deducted by HMRC, minimising the overall tax saving.
The transport companies using the scheme are: Midland Expressway, which runs the M6 Toll road, Gatwick Airport, Bristol Airport, Associated British Ports, which runs 21 ports across the UK, Peel Ports, which runs the Manchester Ship Canal and the Port of Liverpool, Forth Ports and High Speed 1.
The news that the expensive Channel Tunnel rail link – also known as HS1 – is among those avoiding tax comes after the Public Accounts Committee found it was already poor value for money. Their inquiry last year concluded its construction had generated billions of pounds in public debt, was “based on dodgy assumptions and bad planning” and had yet to prove it was value for money.
Committee chair Margaret Hodge MP said: “The taxpayer has been saddled with a bill of more than £10bn for HS1, a project which was originally supposed to pay for itself but has been riddled with costly mistakes. If a company that is benefiting from this level of taxpayer support is avoiding paying its own fair share of tax, that is simply outrageous.
“What this series of investigations by Corporate Watch and The Independent has shown is that the scale of tax avoidance by Britain’s biggest companies is even worse than previously thought. HMRC has got to get its act together because this is not something that we as a society can afford.”
Peel Ports, which has avoided an estimated £14m in tax using this loophole, is part of the Peel Group, which also owns the BBC’s new Salford home, MediaCityUk. The group’s owner, John Whittaker, is known to run many of his deals via the Isle of Man, a known tax haven.
A spokesman for the Peel Group said: “The Peel Group continues to reiterate its position which is that it pays its fair share of corporation tax. All Peel Group businesses, which include Peel Ports Group Limited, are UK domiciled for taxation purposes and pay the appropriate level of UK corporation tax.”
Associated British Ports accrued more interest to its owners than any other company in this investigation, potentially avoiding £55.7m in 2012 alone and more than £100m since the Eurobonds were issued in 2006. An ABP spokesman said its “financing structure is compliant with UK law”.
The M6 toll road is considered such a failure that a local transport chief demanded a cut in tolls – and possible re-nationalisation – earlier this year. Midland Expressway chief executive Thomas Fanning said: “Midland Expressway Limited (MEL) complies with all UK tax, regulatory and legal requirements.”
A spokeswoman for Gatwick Airport said it was “fully compliant with UK tax law” and that the scheme had not saved any tax so far after losses from capital investment. She said: “The use of equity rather than shareholder debt to help fund the investment would not have moved Gatwick into a corporation tax paying position during this time.”
Forth Ports made no comment, but a spokesman for Arcus European Infrastructure Fund said: “Arcus structures its affairs to comply with all relevant tax laws.”
A spokesman for Bristol airport said it “fully complies with UK regulatory, tax and legal requirements”.
An HMRC spokesman said: “There are rules that prevent companies getting a tax deduction on excessive amounts of interest paid on loans from other companies in the group. HMRC robustly polices these rules.”
A spokeswoman for HS1 said: “HS1 is a piece of major UK infrastructure that is fully compliant with UK tax legislation, paying all the tax it owes. The Eurobond interest tax treatment is covered by UK tax legislation.“
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