Tax avoidance

Luxembourg pulled into Paradise Papers scandal

Leaked documents show that Blackstone used offshore companies to purchase and operate the St Enoch Shopping Centre in Glasgow.
Leaked documents show that Blackstone used offshore companies to purchase and operate the St Enoch Shopping Centre in Glasgow.
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Luxembourg has been pulled into the Paradise Papers off-shore tax avoidance scandal, as new documents show a complex structure of companies in the Grand-Duchy allowed private equity giant Blackstone to avoid paying tens of millions of pounds on UK property acquisitions.

The documents, according to reports by the BBC and the Guardian, reveal Blackstone used offshore companies to purchase and operate the St Enoch Shopping Centre in Glasgow and Chiswick Business Park in London.

The BBC report said there was no suggestion that the structures were illegal but that their principal purpose was to avoid tax.    

A leaked note from PwC Luxembourg, included in the trove of documents from offshore law firm Appleby, detailed how the tax structures were intended to "minimise ongoing income, corporate, withholding and other taxes in the UK, Jersey and Luxembourg."  

The BBC said the data suggests Blackstone's structures allowed it to avoid £19 million (€21.5 million) in stamp duty on its purchase of the Chiswick Park office complex in London, which it bought for £480 million in 2011 and later sold to the Chinese government for £780 million in 2014.

The tax structure also meant it could avoid tax of up to £30 million annual rental income and capital giants tax on the sale of the business park.

In 2013, Blackstone also bought the St Enoch Centre in Glasgow for about £190 million.

The BBC said documents show it would have avoided stamp duty of £7.6 million and corporate tax on up to £10 million annual rental income.

Both the St Enoch Centre and Chiswick Park properties were held in property trusts in Jersey, allowing the firm to avoid stamp duty.

The Jersey trusts were in turn owned and funded by a series of companies that Blackstone registered in Luxembourg, the BBC said.

Blackstone funds bought the buildings by filtering the money through the Luxembourg companies in the form of inter-company loans.

The interest payment on these loans were written off against the profits of the rental income, meaning that minimal tax was paid in Luxembourg, the BBC said.

The loans are treated as debt by the recipient, but as equity by the lending company, according to the Guardian report.

The recipient can offset interest against profit to reduce the amount of tax paid, while the lender can treat the interest paid as dividends. In a conventional loan, those repayments would be treated as taxable income, the Guardian said.

The Guardian report said seven Luxembourg companies were set up for a cost of €75 each. It said the documents from PwC show it sought approval from the Luxembourg tax authorities before setting up the "aggressive" structure.

PwC advised on the structure for the Chiswick Park deal, while Deloitte advised on the St Enoch Centre acquisition. Both documents were included in the Paradise Papers leak.

Blackstone said in a statement to the Guardian and BBC it had been "wholly compliant with UK and international tax laws and regulation".

PwC told the news outlets its advice was "in accordance with all applicable laws, rules, and regulations, including proper disclosure to tax authorities, and adheres to the highest professional standards and our own tax global code of conduct." Deloitte said it "was unable to comment".

(Hannah Brenton. hannah.brenton@wort.lu, +352 4993 728)

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