4. The main areas where advantages could arise in this contract relate to tax on capital gains in relation to disposals of property, rental income, and, to a lesser extent, profits retained offshore and deals with landlords to extend leases in exchange for up-front payments.
5. Mapeley estimated in 2004 that if it had been required to bring the STEPS properties onshore it would have had to increase the contract price by £55 million (in 2001 net present value terms), to cover the extra UK tax that might have been due. It estimated this by adjusting the tax assumptions in the financial model that underpinned the contract to produce an "onshore" model. This adjustment reduced the return on equity. To achieve the original planned return on equity it assessed it would have needed to increase the contract price from £1,579 million to £1,634 million in present value terms, an increase of 3.5% (£55 million).
6. We examined whether Mapeley had taken account of all possible tax benefits in its models. Mapeley's price reflects that benefits result from offshore ownership, but there is some uncertainty over the accuracy of its price increase estimate of £55 million. This is because the models did not take account of the Non-Resident Landlord scheme, which allows Mapeley to pay a lower rate of tax on rental income than if it were onshore. We estimate that this provides the potential for maximum additional tax savings of £1 million (in 2001 net present value). There is also uncertainty about the reflection of the purchase price for the properties, split between an upfront payment of £220 million and £150 million in reduced payments over the contract, in the models.
7. The estimated tax savings were not a deciding factor in the selection of Mapeley. The £55 million price increase was not material compared to the difference between the Mapeley bid and the public sector comparator (£300 million higher) and the nearest other bid (£500 million higher), and the uncertainties referred to in paragraph 6 are unlikely to materially increase the £55 million price increase. While comparisons with other bids are not straightforward, the rate of equity return sought by Mapeley was lower than the rate sought by other bidders.