Blar Buidhe

Here is a tale of murky financials; tax dodges; and financial engineering above and beyond the call of reality.

Let's deal with the facts, first.  The property is owned by NHP Securities No 3 Ltd, a name that is as vague as the ultimate ownership.

NHP Securities No 3 Ltd have fixed assets worth £540,000 (recently - desperately - revalued from £535,000) which surely has to be Blar Buidhe and Blar Buidhe alone.

NHP Securities No 3 Ltd is ultimately controlled by Libra No 2 Limited, registered in the Cayman Isles, and hence to Delta Commercial Property LP, and limited partnership based in the Isle of Man.

At this point forget trying to find out who owns these companies; you can't unless they want you to.

But that's not the shocker.

Against the asset of £540,000 the company has borrowed £215,000,000; yes, a leverage ratio of 400 times assets, most of which has been used to invest in other apparently associated companies through loan notes, guarantees etc etc.  Unsurprisingly, you will find that the company is insolvent by £215,000,000, although various guarantees and promises seen to imply that these debts will never be paid.

So how and why does this make any sense.  Well, of course, in the real world it doesn't.  But here is how it works in practice....

Company A buys a property

Company B buys that assets from company A

Company A lends the money to company C in the Cayman Isles

Company C lends the money back to Company B

Company C charges 10% interest for the loan

Company A charges no interest

The interest is earned offshore, and as ultimate control resides outside the UK the interest is not taxable in the UK

The interest paid by B is a tax deduction, and the tax losses can be used to create a tax refund or tax deduction in other companies.

As the profits pile up, the loans get bigger and bigger, and the interest all moves tax-free offshore; to fund the next property.

Blar Buidhe apparently paid £24,050 rent, which has probably, ultimately, ended up tax-free in either the Cayman Isles or the Isle of Man.  If it hasn't, I'd be astonished.

That's £24,050 that could have gone towards care in the home.  That's £24,050 that has been paid by pensioners out of their meagre assets.  That's £24,050 that should have been taxed and been used to fund care, education and public services.

And multiply that through by 700 care homes, most of which are very considerably bigger.

Isn't it a scandal that the public sector is effectively funding and encouraging [perfectly legal] tax-dodging?  Bizarrely, it all started with the Inland Revenue and Mapeley Steps Ltd.

At it is going to get worse.  There is a current active proposal, which is out for consultation, allowing offshore UK-controlled financing companies to pay a tax rate of under 10% on the money they draw out of the public and private sectors.  And almost no extra tax on trading income 'earned' in tax havens.

If there is a lesson to be learned from Southern Cross, and an opportunity to be grasped, it is that public sector funded transactions must be transparent, and must avoid tax-havens.  It is easy to do; just write the conditions into the tender and demand the waiving of 'commercial confidentiality' and rebuild trust between providers and funders.

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All this, and still on holiday too.