14 February 2003
The chair of a powerful Commons committee has slammed the Inland Revenue for entering into a £220m Private Finance Initiative deal that transferred public buildings to a financially troubled company based in an offshore tax haven.
Michael Fallon, who heads the Treasury sub-committee, said the poor handling of the joint Inland Revenue/Customs & Excise Steps Private Finance Initiative project, which ultimately transferred 600 public properties to Bermuda-based Mapeley Steps Ltd, was the result of 'serious lapses' by officials at the two departments.
Fallon said officials had failed in their duty to inform the minister then responsible for the Inland Revenue, Dawn Primarolo, of developments relating to the deal.
The Inland Revenue management team, including chair Sir Nick Montagu, went ahead with the 20-year 'leaseback' contract, although they knew Mapeley was based offshore, Fallon said.
Offshore companies have minimal exposure to UK capital gains tax on property.
Fallon told Public Finance that Mapeley's financial troubles could yet throw the whole deal into chaos. 'The Inland Revenue, the department responsible for implementing the government's policy of reducing tax avoidance, should have been aware of the difficulties of being party to a deal that transferred ownership of its properties to an offshore company,' he said.
The committee report into the fiasco, published on February 12, reveals that seven months after signing the contract in 2001, Mapeley also approached the government for a 'substantial financial settlement' to alleviate cash flow problems.
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