Energy companies have allegedly cut tens of millions of pounds off their tax bills by exploiting a legal loophole, according to a joint investigation by the Independent on Sunday and non-profit group Corporate Watch.
UK Power Networks, Electricity North West and Scotia Gas Networks are all accused of taking advantage of the “quoted Eurobond exemption” to lower their taxes.
The report claims Scotia Gas Networks has saved £72.5 million, UK Power Networks has saved £38 million and Electricity North West has saved £30 million.
Under the scheme, the companies allegedly slashed their taxable profits, by piling up debts to their foreign shareholders.
A 20% ‘withholding tax’ automatically charged by HMRC on interest payments sent abroad, means such a scheme wouldn’t normally be particularly profitable.
However, the companies and their shareholders are accused of exploiting the ‘Eurobond exemption’, which allows foreign interest payments to go untaxed if loans were made through an offshore stock exchange. The report alleges the Big Six supplier SSE is also complicit in the scheme, having signed off on loans made to Scotia Gas Networks. SSE owns half of the firm.
Speaking on The Andrew Marr Show, the Liberal Democrat Chief Secretary to the Treasury Danny Alexander said: “My message to any company that is engaged in aggressive tax avoidance is to stop it.
“People are rightly livid about companies and individuals avoiding paying the proper amount of tax. I’m livid about that. It’s something which is not acceptable at any time but particularly at a time when we are going through tough spending choices.”
Chris Leslie, Labour’s Shadow Chief Secretary to the Treasury said in response: “David Cameron needs to explain why he decided not to close down this tax loophole which we now know some energy companies are using to avoid millions in tax.
“And it’s not good enough for Danny Alexander to simply say he is angry about companies exploiting loopholes. As the Chief Secretary to the Treasury he should be acting to close them down.”
A spokeswoman for Electricity North West said the company would not comment on the story.
A UK Power Networks spokeswoman said: “UK Power Networks fully complies with all applicable regulatory, tax and legal requirements relevant to a group operating in the UK.”
A spokeswoman for Scotia Gas Networks said: “I can confirm we fully comply with all UK taxation and legal requirements.”
An SSE spokesperson said: “SSE would pay the same amount of tax in the UK no matter what the method of investment in [Scotia Gas Networks]. SSE is taxable on the interest it receives on the shareholder loan, so the interest deduction [Scotia Gas Networks] obtains is matched by an interest receipt in SSE. The position is, therefore, tax neutral, as it’s a UK lender and borrower.”
The Eurobond exemption was introduced in 1984 to encourage investment into UK companies. Last year HMRC considered restricting the exemption but later decided not to following a consultation process.