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PFI ‘value for money’ exercises must take account of tax planning, say MPs

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The government should revisit tax assumptions used in assessing the value for money of private finance initiative projects and introduce arrangements for sharing gains on the sale of PFI equity shares, MPs have recommended.

‘Government assumes tax revenue for government from PFI investments, but one of the largest PFI investment funds told us that 72% of the shareholders of its management company are registered offshore,’ the Public Accounts Committee said.

‘The Treasury could not tell us if PFI investors had paid tax in the UK on profits and on equity gains, or whether corporation taxes had been collected from PFI companies.’

Special purpose vehicles

Two weeks earlier, a Treasury Committtee report on PFI noted that private companies entering into contracts with the public sector ‘will quite reasonably seek to minimise their tax liabilities’. Governments may also vary tax rates and the value for money exercise ‘must take this into account’.

The Treasury Committee said: ‘As well as the fact that interest paid by the highly leveraged [special purpose vehicle managing and financing a project] is tax deductible the SPV is also likely to adopt sophisticated tax limitation strategies.

‘Indeed, an SPV that can organize its tax planning efficiently, including the use of transfer pricing and offshore registration and claim all possible tax allowances, might pay less tax than the conventional alternative.

‘For example, the STEPs deal, providing property and premises for the two departments which were to become HMRC, was negotiated with Mapeley STEPS Limited, a property holding company registered in Bermuda.

‘A study of the early PFI highways projects found higher rates of profit, and low payments of corporation tax, and questioned the assumption that high rates of tax would be paid. Evidence we received shows that ultimate ownership of over 90 PFI projects has moved offshore.’