UK water company under fire for subs in Cayman Islands [“sewer rats”]
By Amanda Banks, Tax-News.com, London
UK Water Company Under Fire Over Corporation Tax
The largest water company in the UK, Thames Water, has come under fire after explaining that its taxable profits have been “substantially reduced” by capital allowances, with the result that it paid no corporation tax on GBP145m pre-tax profit last year.
The company’s accounts – which include interest paid on loans from a Cayman Islands subsidiary – have been described as “extraordinary” by one Member of Parliament, and they were published as the head of water industry regulator Ofwat complained of “morally questionable” financial arrangements in the industry.
The figures appear in a business review, in which Thames Water appears to anticipate criticism. The company states: “HMRC’s capital allowance regime permits companies to delay the payment of corporation tax, not avoid it, by providing accelerated tax relief for capital investment.” It goes on to explain that it has invested GBP1bn each year in assets, with the result that it currently has a deferred tax liability of GBP961.2m. The review adds in the past year Thames Water has paid GBP150m in other taxes, and that expenditure with suppliers and contractors “generates substantial additional tax revenues in the wider economy.”
However, Simon Hughes MP, who is Deputy Leader of the Coalition Government’s Liberal Democrat Party, has called for the Treasury, the National Audit Office, and the regulator to investigate, and he noted that bills to consumers have increased by 7 percent. Last year, Hughes claimed that his office and a newspaper had uncovered “widespread corporate misbehavior” in relation to the sector’s tax arrangements.
Thames Water has denied that subsidiaries in the Cayman Islands are a tax-avoidance measure.
The company’s finance director was quoted as saying that they exist “purely to comply with UK company law requirements for the acquisition financing structure.”
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Sewer rats! The greedy foreign owners of our water firms squeeze customers dry. Thames Water avoiding tax is the final insult
By Alex Brummer From Daily Mail UK
Sadly, we are getting well used to major corporations avoiding tax — at a cost to the Treasury of £2 billion a year — but that a public utility is cynically indulging in such immorality takes the breath away.
Thames Water, Britain’s biggest water supplier with more than nine million customers, has joined the dishonourable army of tax-dodgers by exploiting loopholes so that it did not pay any UK corporation taxes last year.
While the authorities are quick enough to jump on ordinary taxpayers and small businesses if there’s the slightest suggestion they are underpaying, there hasn’t been a peep of protest from the Treasury.
Not a drop! Thames Water, Britain’s biggest water supplier, has joined the dishonourable army of tax-dodgers by exploiting loopholes so that it did not pay any UK corporation taxes last year
This is despite the fact that the mandarins will know that Thames has a virtual monopoly, operating in what is meant to be a highly-regulated marketplace, and has earned huge profits of £549 million in the past year on sales of £1.8 billion.
That’s why I believe that as a public utility, supplying almost every household and business in London and large swathes of the South-East, the company’s behaviour is so much more reprehensible than that of foreign-based companies such as Starbucks and Amazon.
Thames’s failure to make a proper contribution to the Exchequer is an affront to every hard-working consumer who has to pay their ever-rising, inflation-busting water bills out of taxed income.
The firm managed to reduce its tax bill by exploiting allowances designed to encourage investment — such as its £1 billion a year spent on plugging pipes and improving drains.
But the story of the company, whose board of directors significantly includes Ed Richards, a former member of Tony Blair’s policy unit at No 10, offers a depressing parable of how the ideals behind the privatisation of Britain’s public utilities have been perverted.
When Margaret Thatcher embarked on the privatisation of the old post-war nationalised industries three decades ago, the noble intention was to remove the heavy hand of the State, and to impose private-sector discipline on out-of-date and under-funded industries.
Instead, we consumers have been betrayed by a terible combination of boardroom greed, weak regulation, and successive governments which have allowed our public utilities to fall into the hands of foreign owners.
The result is that many of our public services, on which we all depend, are controlled by unaccountable companies based abroad, whose directors and investors seem to show scant interest in the hard-pressed British consumer.
Outrage: Thames’s failure to make a proper contribution to the Exchequer is an affront to every hard-working consumer who has to pay their ever-rising, inflation-busting water bills out of taxed income
No, the sole aim is to extract as much income from each enterprise as possible.
Of Britain’s ten major regional water companies, only three —Severn Trent, recently a take-over target of a consortium led by a Kuwaiti sovereign wealth fund; the North-West’s United Utilities; and Pennon, owner of South West Water — remain public-quoted companies with their headquarters in Britain. The rest are overseas or partly-overseas owned. Thames is in the hands of a consortium of investors led by an Australian bank, which includes the China Investment Corporation.
Unsurprisingly, it is almost impossible to hold such firms directly to account because their headquarters are in Australia, Indonesia and Hong Kong, precluding British consumers from attending general meetings.
In many ways, Thames Water is the most egregious example of this new breed of firms which use private equity to raise money, and which thus have huge levels of debt that can be offset against tax.
Once, it was considered the jewel in the crown of Britain’s water industry. Apart from a vast domestic customer base, it has 100 water treatment plants, 290 pumping stations and 235 reservoirs.
Little wonder that in 2001 one of Europe’s biggest power utilities, the German firm RWE, snapped it up. Profits soared as the company ramped up prices: in 2005, a year before the great drought, prices were raised by a staggering 21 per cent.
Ruthless: It is Macquarie, the company which bought Thames for £9 billion, and its financial engineering that has allowed Thames to escape paying any corporation tax in Britain
When reservoirs did start to dry up, Thames customers were banned from watering their gardens. But the Mail revealed that water sprinklers were on full power spraying the immaculate front lawn of RWE’s chief executive in Holland.
The outcry was so great that RWE put Thames up for auction, and it was bought for £9 billion by ruthless Australian private equity firm Macquarie, notorious for borrowing heavily to finance its activities.
It is Macquarie’s financial engineering that has allowed Thames to escape paying any corporation tax in Britain.
The firm’s accounts show that it still carries a gargantuan £8.4 billion of borrowing on its books, some seven years after it bought the company from the Germans. The net interest charge on this was directly offset against tax.
How ironic that only last year Chancellor George Osborne welcomed the news that the China Investment Corporation had taken an 8.6 per cent stake in Thames Water despite the fact that the utility firm had spent years circumventing regulation and UK taxation. He said it was ‘good news for the British and the Chinese economies’, and ‘a vote of confidence in Britain’.
Yet HMRC which is, of course, directly under the Chancellor’s control, may take a rather different view given what we now know about Thames’s tax situation — and this at a time when Mr Osborne has set aside tens of millions of pounds to track down tax-avoiders.
Nor should we forget that great socialist Tony Blair — whose old mate Ed Richards, remember, is on the Thames Water board — is reported to have acted as an adviser to the China Investment Corporation, which has £400 billion of assets and is one of the world’s largest sovereign wealth funds.
Earlier this year, Thames was embroiled in another scandal after it emerged that the group financed some of its operations through the low-tax Cayman Islands territory. No wonder the normally sleepy regulator Ofwat felt obliged to speak out. Its chairman, Jonson Cox, said that the complex structures that help reduce tax were ‘morally questionable in a vital public service’.
This was welcome criticism after years of spinelessness, during which the water industry watchdog largely sat on the sidelines watching the colonisation of Britain’s supplies by get-rich-quick foreign investors.
But if it had any claim to integrity, Ofwat now has a duty to act, and defend consumers against the scandalous, ever-rising water bills and ever bigger yields for overseas investors.
In many ways, Thames Water is the most egregious example of a new breed of firms which use private equity to raise money, and which thus have huge levels of debt that can be offset against tax
Its chairman ought to be familiar with the methods used by foreign owners to run our water utilities dry. After all, he is a former chairman of Yorkshire Water, which is owned by an international consortium that includes Citibank, of New York, and HSBC.
By law, Ofwat is required to set prices that encourage the water companies to invest in new pipelines, and sewerage and sewage plants, while allowing them to make a decent financial return.
But as we discovered during the drought of 2006, and more recently in the dry spring last year, levels of investment were utterly inadequate.
The necessity of developing a water grid that enables water to be shipped from rain-soaked parts of the country to those in need still remains a pipe dream.
Thames Water has grand plans. These include a tunnel under the Thames, designed to cope with the expanding disposal needs of the capital. But this £4 billion investment remains stuck on the drawing board. And if it ever gets the go-ahead, it will inevitably mean bigger bills for us.
Foreign companies in our water industry, like the interlopers in the electricity sector, were attracted to Britain because of our healthy attitude to private enterprise and a keenness to invite international investors.
But these firms have exploited Britain’s soft-touch regulation, and the fear of successive governments of intervening to protect consumers. As these companies funnel profits overseas, the British consumer has paid a particularly heavy price.
Now to find out that some of those firms are not paying tax really is the final insult.
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