PPP projects in offshore portfolios

Five of the above offshore infrastructure funds have 50%-100% equity ownership of 115 UK PPP projects, plus others in continental Europe, Canada and Australia by late 2012 - see Table 21. In addition, they have smaller equity stakes in a further 200 projects.

It is significant that the five funds have a wide range of assets including health, education, transport, criminal justice and defence projects. Some funds, for example International Public Partnerships are rapidly acquiring energy projects, such as wind farms.

Table 21: PPP projects 50%-100% owned by infrastructure funds in tax havens

Source: ESSU PPP Equity Database, September 2012 and infrastructure fund websites 7 November 2012.

It is not within the scope of this report to examine the taxation of offshore infrastructure funds or the taxation of UK registered SPCs. However, in brief, the current offshore location of infrastructure fund companies usually provides exemption from income tax and other benefits. For example, Guernsey currently does not levy taxes on capital gains, capital inheritance, sales or turnover, and estate duties. Nor does it charge stamp duty on the issue, transfer or redemption of shares in infrastructure fund companies.

Guernsey, and similar jurisdictions, has bilateral agreements with EU Member States on the taxation of savings income (EU Savings Directive 2003). As the HICL 2012 prospectus makes clear, "…any payments made by the Company to Shareholders will not be subject to reporting obligations pursuant to the agreements between Guernsey and EU Member States to implement the Directive in Guernsey" (HICL, 2012).

The Tax Research Network (http://www.taxresearch.org.uk/Blog/) and Michael Meacher MP have proposed a General Anti-Tax Avoidance Principle. A Bill is before Parliament that would "…introduce a principle that any financial arrangements made by a company or individual should not have as their primary purpose the avoidance of tax; to establish a statutory rule to apply in the assessment of such arrangements; and for connected purposes" (http://services.parliament.uk/bills/2012-13/generalantitaxavoidanceprinciple.html)

The European Commission published a recommendation on aggressive tax planning in December 2012 "…address instances in which a taxpayer derives fiscal benefits through engineering its tax affairs in such a way that income is not taxed by any of the tax jurisdictions involved (double non-taxation). The persistence of such situations can lead to artificial capital flows and movements of taxpayers within the internal market and thus harm its proper functioning as well as erode Member States' tax bases" (http://ec.europa.eu/taxation_customs/resources/documents/taxation/tax_fraud_evasion/c_2012_8806_en.pdf)

There is growing support for stringent EU and international regulations that tackle tax avoidance, tax evasion and aggressive tax planning.

The growth of offshore listed infrastructure funds is a recent trend that is consolidating ownership of PPP assets. The next part discusses the political economy of PPP equity transactions, in particular whether public interest can be protected, the erosion of accountability and the growing power of infrastructure funds.