Tesco move to the Cayman Islands

Tesco has created an elaborate corporate structure involving offshore tax havens which enables it to avoid paying what could be up to £1bn of tax on profits from the sale of its UK properties. The complex new structures uncovered by a six-month Guardian investigation include a string of Cayman Island companies. These are being used by the supermarket giant as it proceeds with its announced programme to sell and lease back £6bn worth of its UK stores.
The stores are being sold to external investors providing Tesco with a big one-off gain which, ordinarily, would be liable to tax, while allowing it to remain in the stores and pay rent to the new owners. The first two deals, worth £445m and £650m, have already used the companies set up in the Cayman Islands - where the rate of corporation tax is zero - allowing Tesco to avoid tax on about £500m profit. Large corporations are increasingly developing strategies to cut tax bills and Tesco is not alone in its tax planning.
The Guardian's analysis of Tesco's accounts over the past five years also shows that the company has paid an effective tax rate of just over 20% on the rest of its profits, at a time when the UK corporation tax rate is 30%.

The investigation has found:
· New company structures set up by Tesco to own stores that are being sold and leased back mean that 99.9% of the company that owns the stores could end up being held offshore. Tesco would be liable to pay UK tax on only the 0.1% of its profit on the sale of the stores held in the UK. Tesco's first two property deals, worth about £1bn, have used this structure and will avoid tax on £500m of profits.
· Although its accounts for the past five years report an average rate of corporation tax of 29%, the actual rate of tax Tesco paid, according to its cash flow statement, is closer to 20%. This is on profits separate from the property deals. UK corporation tax is 30%.
· Tesco has sold its 37 stores in the first two sale and leaseback deals at twice the book value that is included in its accounts, making a profit of about £500m on the £1bn of stores sold. If it achieves the same rate of return on all its disposals as expected, its share of profits from property sales would come to about £3bn. The UK corporation tax due on this would be as high as £1bn, but the retailer could avoid paying this because of its offshore structure.
· A string of other company structures leading to the Cayman Islands have been set up and more of Tesco's properties have already been transferred to them so that they could be quickly activated for the next tranche of store sales.

Tesco Red (GP), which acted as general partner in the £445 million sale-and-leaseback partnership with the British Airways pension funds did indeed pay UK tax on its share of income from ongoing business after the deal. Tesco Red (GP)'s UK income for the period to February 28 2007 was just a measly £832 and its UK tax bill was £494.

Tesco claim since they pay corporation tax, business rates, employer's national insurance contributions and other taxes. Combined with the approximately £750m of PAYE tax, employee's NIC and net VAT that we collected in that financial year, this means they are in the top 10 taxpayers in the UK. We wonder how their rival supermarkets and competitors feel - or are they up to the same tax avoidance [ tax avoidance rather than tax evasion or tax cheating, of course ]



Nearly a third of the UK's 700 largest businesses paid no corporation tax in the year 2005-6. A further third paid less than £10m each, according to figures from the National Audit Office released last year.

Tax sharks

Almost a third of the UK’s 700 biggest businesses paid no corporation tax in the 2005-06 financial year as reported here .

Another 30 per cent paid less than £10m each, an official study has found.

According to a National Audit Office analysis of the tax raised from the 700 companies handled by the large business service of Revenue & Customs 50 businesses, or 7 per cent of the 700, paid 67 per cent of the tax while about 220 paid none and another 210 each paid less than £10m.

Some tax experts were taken aback by the small amount of tax many of the companies paid. Michael Devereux of the Oxford University Centre for Business Taxation, said: ”It is certainly surprising.”

NOT so to the Socialist Courier , it isn't .

We reported in the Socialist Standard way back in June 99 that Rupert Murdoch's News Corp protected their profits by a series of complex financial arrangements involving off-shore tax havens—arrangements that have seen News Corp pay no net British corporation tax in 11 years, despite profits here of £1.4 billion.