Britain’s most senior tax inspectors will be grilled by MPs today over HMRC’s failure to stop a legal tax avoidance scheme that loses them more than half a billion pounds in tax every year.
Last week a joint investigation by this newspaper and Corporate Watch revealed more than 30 companies, including the Channel Tunnel rail link, Camelot and major High Street chains, are using a tax avoidance scheme that sees UK companies load up on debt from their overseas owners and use the interest to slash their taxable UK income. The payments are sent to the owners tax-free because the loans are made through offshore stock exchanges such as the Channel Islands that qualify, under HMRC regulations, for the Quoted Eurobond Exemption.
Without the exemption, the owners would have to pay a 20 per cent “withholding” tax and most of the tax savings from the interest deductions would be cancelled out.
Last year, HMRC considered restricting the exemption to stop it being used for such “intra-group” lending, but decided to keep it open after lobbying by financial and accountancy firms.
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