St Enoch Shopping Centre and Tax Cheating

Private equity firm Blackstone avoided tens of millions of pounds in UK taxes on property deals in Glasgow, the Paradise Papers show.

The documents reveal it used offshore companies to purchase and operate the St Enoch Shopping Centre in Glasgow (and Chiswick Business Park in London.)

The papers show how accountancy firms mapped out strategies to minimise or avoid every significant tax.

In 2013, the private equity giant also bought the St Enoch Centre in Glasgow, a large city centre shopping complex housing almost 100 stores, for about £190m.

Documents show it would have avoided stamp duty of £7.6m and corporate tax on up to £10m annual rental income. St Enoch Centre, which Blackstone still owns, (and Chiswick Park) were already held in property trusts known as JPUTs, in the tax haven of Jersey, when it bought them. This allowed the firm to purchase the properties without paying millions of pounds in UK stamp duty.

George Turner, from the Tax Justice Network, told the BBC: "What they are doing is buying into the trust so when the original owners sold the property to Blackstone, then they weren't selling the property itself. "They were selling an interest in the trust that owns the property and because that trust is owned offshore, they can avoid stamp duty." George Turner, from the Tax Justice Network, said: "The language really is quite shocking in places because it's so clear and blatant what the intention is. What you have here is a whole myriad of companies being set up, mostly in Luxembourg but also you have this trust structure in Jersey, and it seems to be to all intents and purposes an economic fiction."

Under the tax structure revealed in the leaked documents, the Jersey trusts were owned and funded by a series of companies that Blackstone registered in Luxembourg. Money for the purchase of the properties was filtered through the Luxembourg companies from central Blackstone funds in the form of inter-company loans. The interest payments on these loans, which were effectively passed from one Blackstone company to another, could be written off against the profits of the rental income, meaning that minimal tax was paid in Luxembourg.

The central purpose of which was to avoid:

• Stamp Duty - by holding the property in an offshore trust in Jersey, and maintain them as collective investment schemes
• Income Tax - on the rental income, by funding the acquisition through a series of inter-company loans and Profit Participating Loans (PPLs), the interest payments on which can be used to write off against profits
• Capital Gains Tax - on disposal, thanks again to the Jersey trust

Profit from rental income at the St Enoch Centre had normally been about £10m a year. The structure allowed Blackstone to turn that into tax free income, by writing it off against interest charges generated from the loans its companies had made to each other.

In some years, just a few thousand pounds appears to have been paid by the Blackstone Luxembourg companies owning St Enoch and Chiswick.

Mr Turner said: "What appears to be happening is that the rental income which is coming in, the companies receiving that are then borrowing huge amounts of money from other companies which are part of the Blackstone Group. Now when they borrow that money, they need to pay interest on it and those interest payments destroy any profitability in those companies. They're borrowing money from themselves and they can claim a tax deduction on that."

http://www.bbc.com/news/uk-scotland-41899034