No tax dodge on UK hospital deal, says local firm
Wednesday 13th April 2011, 2:29PM BST.
A GUERNSEY investment firm has defended its operation following claims that it was set up to help divert millions of pounds of NHS money.
The BBC said that HICL, which was created by the high street bank HSBC, had used a legal tax loophole to handle the profits from private finance initiatives, such as the Queen Alexandra Hospital in Portsmouth.
In a PFI, a private sector consortium will form a project company to bid for a concession contract, such as a school or hospital, in the public sector.
If successful, it will be responsible for the financing and construction of the project and its long-term maintenance.
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I see few locals are prepared to criticise when it comes to taking money off the mainland.
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Mike – your point is what?
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@Mike
“mainland”
I dont see any referance to France in this article.
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Mike – that is because no-one is taking money off the mainland. The offshore investment company is providing finance as part of a UK government backed PFI initiative. So it is providing money to help fund the NHS.
By using an offshore company, it is a more attractive proposition for investors than using a UK company. If there are UK investors, they pay UK tax on their profits when they receive them.
The story has been spun as if an offshore company is taking money away from the NHS but it is the reverse. It may be that you think that the PFI deal that the government has set up is too generous and that the private investors should not make so much profit. But that is a different issue. When they do make profit, it is irrelevant to the NHS what happens to those profits, where they are sent or how they are taxed.
If you think PFI is bad for the NHS, take it up with the UK government as it is their idea.
The story could have been under the headline “Channel Islands investment firm provides much-needed funding for the NHS to plug a hole left by the Treasury”. Looks a bit different then, eh?
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Oh we are a pedantic lot are we not. Not taking money off the NHS, are you having a laugh. Mainland, no mention of France, I am sad, sorry for lack of knowledge in geography.
”
The story could have been under the headline “Channel Islands investment firm provides much-needed funding for the NHS to plug a hole left by the Treasury”. Looks a bit different then, eh?”
To believe that you would have to be a banker.
The reason for my initial post was locals are far to quick to condemn the UK, and in previous posts have suggested that the Channel Islands are supporting the UK. What I meant by keeping quiet on this one is that many locals do not realise how much cash comes from the UK, and when it does locals do not complain about the cash rolling in. But hey dig up a road and locals won’t stop yapping.
Lastly perhaps some of us should realise we seem to contradict ourselves on the various posts around this site.
Bored now, don’t know why I bothered to write this in the first place.
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TL
The biggest reason they set up shells here is so that they can offset the loans against any profit derived in the UK and so pay a tiny percentage of tax where it is actually due. It’s a classic tax dodging set up. Stop being so coy.
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Mike
I agree. So much time is spent on how wide buses are, or what a bad mother someone is, that the proper issues are forgotten.
So forgotten that people have got no idea. Even those with half an idea just read a script.
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Arnald – the loans would be set off against profits if it was a UK investment vehicle as well, so the profits would still be reduced in the same way.
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Terry Langlois
Absolutely correct. Arnald shows his ignorance of tax issues once again whilst shooting from the hip because it looks like an easy target.
If the investors are institutional, such as pension funds or mutual funds, then receiving the loan interest via Guernsey rather than directly from the UK avoids the unnecessary hassle of UK withholding taxes (which would ultimately be reclaimed by the tax-exempt investor). If the investor is not a tax-exempt investor then he/it will pay tax when the interest is ultimately distributed to him/it. There is no loss of UK tax as a result.
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TL
But the tax due would be on the offshore parent at 0%. If the holding company was UK it would be taxed at Corp Tax levels.
Also any proceeds from the sale of the contract would also be tax free.
So the contract increases but the profits, arising from UK NHS workers, infrastructure and UK general revenue, get fed into renumeration for board and shareholders of an offshore company. Not including the layers of fees taken by finance institutions.
It is NOT an investment into a hospital for the public, it’s a means of transferring gains made in the real economy into the pockets of a few already wealthy loan arrangees.
It is no argument to say that a hospital wouldn’t be built otherwise. If the UK needed a hospital in that area at that time, it would borrow more cheaply from public debt to realise it.
Tax dodging for personal gain at another jurisdictions expense. That’s our trade. Don’t be coy.
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Arnald
But if the parent (if there is a parent) was UK resident then it would be taxed anyway on the profits of the Guernsey company on a lookthrough basis. The UK does have anti-avoidance legislation you know to prevent such situations arising. There could be for example 5 UK investors and 1 foreign or tax-exempt investor (i.e. a pension fund). The 5 UK investors would all be liable to UK tax via the Guernsey company and the foreign or tax-exempt investor would be. If there wasn’t a Guernsey company involved then the UK investors would be in the same position and the foreign or tax-exempt investor would be disadvantaged, in which case they may decide not to invest and their money doesn’t go in at all.
You seem to be well out of your depth when it comes to UK tax. All you can do is add 2 and 2 and make it 5 as soon as the word “offshore” is seen, always assuming the worst.
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Arnald – as GM has clearly pointed out, you’ve got it wrong as far as UK tax and UK investors are concerned.
As for non-UK investors, are you really saying that they should voluntarily make themselves subject to UK tax by investing via a UK company? So, in return for the benefit of their investment into the UK, you think that they should be obliged to pay UK tax on their profits rather than (or as well as) the tax in their home jurisdiction? Well done, you’ve just made public projects in the UK completely unviable for overseas investors.
Your main objection seems to be that profits from this PFI investment go somewhere other than the NHS. But as I said, that is a question for the UK government which obviously sees a benefit of PFI and of giving some of the profits away in order to attract the investment.
“It is NOT an investment into a hospital for the public” – really? Maybe you should tell that to the UK government, as they seem to think that it is because they sought and approved the investment. I think that they would be very surprised to be told that they were setting up tax avoidance schemes themselves.
“If the UK needed a hospital in that area at that time, it would borrow more cheaply from public debt to realise it” – I am sure that George Osborne would love to have a chat with you to find out how he could fund public projects more cheaply. Forgive me, but I am minded to think that the UK Treasury knows a bit more about public finances than you do and if the UK government thinks that PFI schemes are the best way of getting money into the NHS, then I’ll take their word over yours.
Yet again, you are objecting to something because you think you should, but have no idea what it is you are objecting to.
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GM you say “The UK does have anti-avoidance legislation you know to prevent such situations arising”
Don’t you mean tax evasion? After all you guys always go on about avoidance being legal.
Terry Langlois
The distaste re PFI and tax havens is that these contracts are entered into by UK companies who then often migrate the contracts offshore to avoid tax.
And yes, before you say it the UK authorities have been slow to try to stop the migration offshore. Will Cameron and Osborne do anything about it? I doubt it.
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Stephen John – are you telling me that if a US investment company was willing to finance a hospital at a competitive rate under a PFI scheme, that the UK should reject the money merely because the profits made by the investment company (i.e. the “price” charged for lending the money) would be taxed in the US and not in the UK?
The PFI investors make a profit of X. That is not the NHS’s money, it belongs to the investors. Where those investors are located and how they are taxed has not bearing on the loans made to the NHS or the amount of benefit that the NHS receives from the PFI scheme.
The original accusation was that the PFI investors were diverting money away from the NHS, which is plainly nonsense.
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Stephen John – no GM does mean anti-avoidance. Whilst evasion is illegal and avoidance is not, there are measures to prevent avoidance schemes which serve no commercial purpose, so that they are solely used to avoid tax.
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Terry Langlois
You say “The original accusation was that the PFI investors were diverting money away from the NHS, which is plainly nonsense”
The Public Accounts Committee, Audit Commission accept that PFI schemes concerning hospitals cost far more via the PFI route than if the UK hospital authorities were to pay directly for the hospitals and running of them.
Nearly 10 years ago Audit Scotland calculated that the extra PFI cost was between £200,000 and £300,000 for each £10million of PFI costs per year.
A simple calculation will show just how much these extra costs are. Or you can Google the information.
This might explain why PFI profits not infrequently exceed 50%. frequently involve cutting services etc.
So, the vetting authorities all accept that PFI schemes for hospitals take monies due to the extra costs, that could have been better used to provide medical services.
Why does the Government tolerate the extra cost of PFI?
Two reasons
1 The costs are not part of the formal national debt and
2 Much of the cost will be borne by taxpayers of the future.
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Stephen John – those criticisms of PFI may all be true, but that is an issue for the UK government and hospital authorities. No-one is forcing them down the PFI route.
If they sign up to a PFI deal, you can hardly blame the other party for taking the profits that are due to them under the agreed deal.
Again, it is an example of using one issue (badly negotiated PFI deals) to suggest that offshore investment companies are taking money from the UK by virtue of them being offshore. Whether they are offshore or not is irrelevant to the original terms of the PFI deal. Classic mud-slinging.
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