Offshore infrastructure funds have been avoiding corporation tax despite making significant profits from their stakes in UK public buildings, an investigation by the European Services Strategy Unit (ESSU) think-tank has found.
The funds aim to provide investors with substantial returns on their capital through Private Finance Initiatives (PFI) and Public Private Partnership (PPP) schemes. Such schemes facilitate the construction of many lucrative new public buildings in the UK like hospitals and schools, which they retain ownership of or equity in. Profit, some of which is passed on to investors, comes from the taxpayer as local authorities and NHS trusts’ contribute so-called unitary payments for their buildings.
The offshore companies through which these funds operate are liable to pay corporation tax to the government of the territory in which they are registered. However, these findings reveal that in many cases this has not been happening.
The ESSU uncovered the extent of the worst offenders’ tax avoidance: “The five largest listed offshore infrastructure funds made a total profit of £2.9bn in the five-year period 2011-2017. They paid a total of £13.5m taxes or a tax rate of 0.47 percent, when the £21.2m of tax credits is included. The five funds collectively paid zero corporate tax in the offshore territories where they have been registered for six years. Two of those funds published accounts to include 2017 and jointly paid no tax in the seventh year.”
Detailing the loss to the UK’s tax coffers, the think-tank estimated that “this represents a potential loss of over £600m in UK tax revenue had these companies been registered in the UK.”
According to ESSU data, 3i Infrastructure has paid just £0.7m tax since 2011 on profits of £912m with Bilfinger Berger and John Laing Infrastructure Fund paying £4.4m and £7.1m on profits of £193m and £368m respectively. Two companies, HICL Infrastructure and International Public Partnerships paid nothing, gaining tax credits, despite making a combined profit of over £1.4bn. Most of these offshore firms are officially registered in the Channel Islands, with three from Guernsey and 3i Infrastructure registered in Jersey. Bilfinger Berger are registered in Luxembourg.
On their website, 3i Infrastructure describes their investment model as “[providing] shareholders with a sustainable total return of 8 percent to 10 percent per annum, to be achieved over the medium term, with a progressive annual dividend per share achiev[ing] this by maintaining a balanced portfolio of infrastructure investments delivering a mix of income yield and capital growth.”