2.21 At contract signature Mapeley STEPS was owned by Fortress Investment Group (incorporated in Delaware USA), Soros Real Estate Partners CV (a Limited Partnership formed in the Netherlands), and Delancey East Limited (resident in the UK at the time, but now offshore). As the STEPS freehold and long-leasehold properties were transferred to a company based outside the UK, tax on any gain made by a sale by this company will not be captured under the current UK tax regime. Furthermore, as the shareholders of Mapeley STEPS are non UK resident, they are not liable to pay UK capital gains tax if they sell their shareholdings since it is generally only payable on capital gains realised on the disposal of an asset by UK resident individuals and companies. Mapeley STEPS Limited is liable to pay UK income tax only on any profits made from renting the properties back to the Departments.
2.22 The location of Mapeley STEPS Limited in Bermuda has no material effect on the overall value for money of this deal to the UK taxpayer. Mapeley STEPS estimated that if it had been required to bring the STEPS properties onshore, it would have had to increase its bid price by £55 million to cover the extra UK tax that might have been due.11 This is not a material figure in terms of a £1.5 billion deal or in the difference between the Mapeley STEPS bid and that of the nearest bidder and was not therefore a deciding factor in selecting Mapeley STEPS.
2.23 Even to the extent that the location of Mapeley STEPS Limited in Bermuda might have affected UK tax revenues, the 'Green Book' stipulated that tax flowbacks or savings should not be counted as part of the microeconomic impact of projects.12
2.24 The Departments followed procurement law throughout the process. The Board of the Inland Revenue only became aware of the tax arrangements late in the procurement. At that stage, the Board concluded in the light of legal advice that it would not have been lawful to exclude Mapeley STEPS on the basis of its tax arrangements. The Board of HM Customs and Excise only became aware of the tax arrangements after contract signature. The Government has responded to the tax issues raised in this deal by suggesting a new clause for future PFI contracts that limits the ability of contractors to go offshore. It remains to be seen how it will work in practice.
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11 This estimate was provided to the National Audit Office by Mapeley STEPS. It represents the net present value, at a 6% real discount rate, of the additional unitary charge needed to offset the potential tax liability if Mapeley STEPS had not been based offshore. The figure reflects Mapeley STEPS own views on prospective increases in commercial property values over the 20 years of the contract and assumes no changes in current UK tax legislation. Given the inevitable uncertainties surrounding forecasts up to 20 years into the future, it can only be a very approximate estimate. This figure has not been agreed with the Inland Revenue and HM Customs and Excise since the Departments cannot comment on the tax affairs of individuals in public.