The Revenue’s Offshore Tax Blunder

(Guardian) – IF YOU HAVE JUST HAD A NEW TAX CODE or VAT demand, it is likely that the Revenue & Customs office that issued it is managed in a tax haven.

And if you have recently visited an old Abbey National office of Santander Bank you are on the premises of an offshore managed office.

You probably didn’t know either. Today an analysis by parliament’s watchdog, the National Audit Office (NAO), reveals the offshore company that managed both deals is legally set to avoid paying hundreds of millions of pounds of tax to the very offices making tax demands on you.

The findings by the Commons public accounts committee is the latest revelation on signing an outsourcing contract eight years ago, which MPs describe today as “highly damaging to the department’s reputation”.

In effect, to save an estimated £1.2bn, HM Revenue & Customs signed a £3.3bn contract with a firm now called Mapeley to hand over for 20 years the ownership and management of 591 tax offices, including the freehold of 132 offices to an offshore company then based in the Cayman Islands.

Today, the cost of contract has risen to £3.87bn, the maximum potential savings have dropped by £300m, and the department has found that it cannot recover its own VAT from the rent. It will have to draw up contingency plans costing over £100m should the company walk away following a decision to close 130 tax offices as part of the first wave of efficiency savings.

But the most extraordinary revelation is the rare glimpse given into tax avoidance by auditors from the NAO. After a stormy hearing at the Commons public accounts committee, the company allowed the NAO access to its offshore books to see the effect of the loss of tax revenue to the government. The figures, hidden at the back of the report, are staggering.

If Mapeley, now part of the US offshore Fortress group, was based in Britain rather than Bermuda, the tax coffers would be swelled by £184m. Easily enough to build a teaching hospital or renovate a lot of schools. In fact, the company is expected to pay £14m – saving £170m. That is hardly enough to renovate a big secondary school. Furthermore, Gordon Brown’s efficiency savings by closing tax offices is going to give the offshore company a tax bonanza if it can get a good price for them. Only the recession is stopping them.

These tax savings are only on the Revenue & Customs contract. The company has a similar deal with the old Abbey National, and if branch closures follow bank mergers under Santander, logic dictates even more tax savings.

No wonder the NAO concludes, in its prosaic way: “There is unlikely to be any overall benefit to the exchequer from such arrangements as any apparent savings for the department are accompanied by reduced tax revenues.”

With everybody living in this country having to pay more tax and face cuts in services to pay for the bailout of the banks, the prospect of the Treasury being deprived by the Revenue of extra tax is obscene.

The people who negotiated this deal should hang their heads in shame, and the politicians – and that includes Gordon Brown, chancellor at the time – should be brought to account for such an inept negotiation.

For while we debate the scale of tax rises and spending cuts in the general election campaign, the directors of the company involved must be laughing all the way to their offshore bank.