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Alan Rusbridger On Tesco And The GMG

by | 29th, December 2008

TIM Worstall spots Alan Rusbridger, editor of The Guardian, writing in the New York Review of Books about the Tesco libel case against The Guardian:

The story over which The Guardian came to grief involved a program launched by Tesco in 2006 to raise $8.5 billion through mainly joint venture sales and leaseback property deals over the following five years. The Stamp Duty Land Tax, assessed on all land transactions, represented a potential $340 million cost to the purchasers on that $8.5 billion (which, if saved, would enhance the price that the third party would be willing to pay).

Take one of these deals, involving a company named Aqua: in the absence of a face-to-face meeting, a reporter trying to write about it would have had to piece together, from publicly available documents, a trail beginning with the creation of the vehicle for this transaction, the Aqua Limited Partnership (LP), whose partners were initially two Cayman companies (the limited partners) and Aqua, a UK company (the general partner, the GP). One of the Cayman companies was resident in the UK, the other in Cayman. A month after Aqua LP was established, in September 2006, public documents reveal that a Mr. Philip Shirley (a tax scheme promoter) became a partner in it and further contributions of cash to the capital of the Aqua Limited Partnership were made: $515,100 by each of the Cayman companies and $289,000 by Philip Shirley.

The reporter would have to follow the document trail on to October 2006, when Tesco Aqua (Finco) Limited loaned $732.7 million to the Aqua LP repayable in 2017. This loan originated from Tesco PLC, i.e., the main UK-based Tesco corporation. He would then discover that in December 2006 one of the two Cayman limited partners was replaced by a Jersey Property Unit Trust. In March 2007, as part of the initial property deal, the loan from Tesco was repaid and a new loan of $882,750 million was raised from Goldman Sachs, secured by the twenty-one Tesco stores that were owned by Aqua LP. The 2007 accounts for Tesco Aqua (Finco) show that it earned interest from the Aqua LP of $16.62 million and paid interest to Tesco of $16.58 million, leaving a minimal profit on which it paid full corporation tax. The accounts of the general partner show a minimal profit from its 0.1 percent interest in the limited partner.

Confused? Unhappily for The Guardian, so were our reporters. From re-reading the prepublication exchanges between Guardian reporters and Tesco it is clear to me that there was an early, fundamental misunderstanding by the reporters of the transactions they were examining, which meant both sides ended up communicating at cross purposes. That may not be excusable—particularly given Tesco’s attempts to set them straight—but some may think it understandable. There was, I believe, no malice involved on The Guardian’s side and no intention to deceive on Tesco’s part.

The truth is that the advanced tax planning undertaken today by most global companies is as intelligible to the average person as particle physics. This state of incomprehension extends to most journalists, editors, parliamentarians, and, importantly, company directors themselves—executive and nonexecutive.

Gawd it’s complicated. However:

Odd, then, that buried on page 25 of yesterday’s paper was the following notice: “Guardian Media Group plc, parent company of the Guardian, in partnership with Apax Partners, has incorporated a new company registered in the Cayman Islands as part of its proposed acquisition of Emap plc.”

A spokesman from GMG is then quoted as saying: “The tax arrangements of Apax Partners and GMG for the acquisition of Emap plc are completely legitimate, and are based on accepted practice and the recommendation of our advisers. This is not about GMG avoiding tax – indeed we have paid an average of 34pc tax over the last five years.”

Fair enough, although I prefer last week’s words from the newspaper’s star columnist, Polly Toynbee.

She argued: “Tesco’s Cayman Islands tax arrangements reminds the world that our tax lawyers are world-beating at ‘tax-efficiency’. When such an emblematic company takes such steps, it speaks volumes about national tax avoidance culture.” Ho-hum.

GMG’s statement raises one obvious question. As the move isn’t about avoiding tax, can we assume that the company is paying at least as much duty on this deal as it would have done had it never engaged with the Cayman Islands?

A GMG spokesman waffles on about paying the same amount of corporation tax as if the bidding vehicle were a UK-registered company, before reiterating that “the deal is structured as a UK Scheme of Arrangement so no stamp duty is payable on the acquisition”. Sounds like less tax to me, then.

As Tim says: “…for of course, The Guardian Media Group was employing the same tactics to reduce the tax bill of the GMG. Odd that Rusbridger doesn’t mention that really.”

Over to him…

Tim



Posted: 29th, December 2008 | In: Reviews Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink