27 June 2003
The controversy over the Inland Revenue's decision to sell its property portfolio to a company based in an offshore tax haven took a new twist this week when the Treasury was asked to clarify whether its revised guidance on future sales was legally watertight.
Public Finance has discovered that MPs on the Commons' Treasury sub-committee, which investigated the deal with Bermuda-based Mapeley Steps, have written to Chancellor Gordon Brown seeking reassurance that the new guidance, which officials claim can be used to prevent contracts going offshore, does not contravene European Union anti-competition laws.
MPs want clarification following what they described as 'indecisive' evidence from Sir Nicholas Montagu, chair of the Revenue.
Montagu made a second appearance before the committee on June 18 to explain his part in the 2001 deal, which transferred ownership of 600 Inland Revenue and Customs & Excise buildings to Mapeley under a 'leaseback' arrangement.
Just days before the deal was completed, officials discovered that Mapeley was based offshore, and therefore not subject to full UK capital gains tax. Montagu told MPs that 'all legal advice' he received indicated that backing out of the deal at that stage would have contravened EU law.
Since the Mapeley furore, the Treasury has issued revised Private Finance Initiative guidance to all departments in its famous 'Green Book'. But, according to MPs, Montagu seemed uncertain whether the new guidance was watertight.
Norman Lamb, Liberal Democrat member of the committee, told PF there 'was now sufficient confusion [among MPs] to seek the chancellor's reassurance that such deals are lawful'.
In a letter to Brown, which was being drafted as PF went to press, Lamb also asks the chancellor whether the guidance could contravene World Trade Organisation regulations.
The Office of Government Commerce, the agency that oversees PFI deals, told PF that ministers could now prevent contracts being granted to companies based in tax havens, 'providing restrictions are stipulated when the contract is first put out to tender'. A spokesman added: 'Our legal advice says this does not contravene EU law.'
But EU law stipulates that it is illegal to prevent offshore companies from bidding for contracts. When pressed by PF, the OGC spokesman admitted that the Treasury's guidance 'could be a matter for legal interpretation'.
PFjun2003
