Scale of Tax Avoidance in Chiswick Business Park Sale Revealed
Paradise Papers show complex structure used by Blackstone to own office development
Analysis of the so-called Paradise Papers has revealed the extent tax avoidance in the 2014 sale of Chiswick Business Park by private equity firm Blackstone. The company would have had to pay tens of millions of pounds of UK taxes after the deal if they hadn’t used complex offshore corporate structures which have been described as an ‘economic fiction’.
The BBC Investigations team have analysed the documents which were leaked from the offshore law firm Appleby which show how a leading accountancy firm explained to Blackstone how the use of a network of trusts and companies in Jersey and Luxembourg could be used to avoid UK tax.
Both Blackstone and the accountancy firm say that the structure of the deal was entirely compliant with law but a campaign group has described the arrangement as an "economic fiction".
Blackstone purchased the 33-acre office development in 2011 for £480million and then sold it to an organisation connect to the China Investment Corporation an organisation connected to the Chinese government for £780million just three years later. Property Week estimate that Blackstone spent £45million upgrading the buildings. The way in which the asset was held by the company meant that no stamp duty was paid on the purchase, very little tax was payable on the estimated £30million annual rental from the business park and no capital gains was paid on the sale.
The Park has over 7,000 employees and buildings are leased to companies including Danone, Tullow Oil Plc, Walt Disney Co., Swarovski, Starbucks and Aker Solutions. Blackstone have continued to manage Chiswick Business Park after the sale.
Blackstone owned the business park through a property trust known as a JPUT which was based in Jersey. George Turner, from the Tax Justice Network is quoted by the BBC as saying, "What they are doing is buying into the trust so when the original owners sold the property to Blackstone, then they weren't selling the property itself. They were selling an interest in the trust that owns the property and because that trust is owned offshore, they can avoid stamp duty."
The leaked documents show that the JPUT through which Chiswick Business Park was held was owned and funded by a series of companies that Blackstone registered in Luxembourg. The funds to pay for the purchase were funnelled into the Luxembourg entity through a series of inter-company loans and Blackstone then used the interest charge that it was paying to itself to offset the profits from the rental income from the offices to reduce the tax liability to a few thousand pounds.
The structure was created by one of the big four accountancy firms Pricewaterhouse Coopers (PwC) and outlined in a 33-page document. This was sent to Appleby for implementation.
George Turner, from the Tax Justice Network, told the BBC, "The language really is quite shocking in places because it's so clear and blatant what the intention is. What you have here is a whole myriad of companies being set up, mostly in Luxembourg but also you have this trust structure in Jersey, and it seems to be to all intents and purposes an economic fiction."
Blackstone responded by saying, "Blackstone's investments are wholly compliant with UK and international tax laws and regulations. The property investment structures in question were acquired from institutional investors and are of a type commonly used for decades for investments in UK real estates, including by listed companies and a variety of institutional investors, and were adopted after appropriate advice was taken from leading tax and legal advisors."
PwC, said "The advice we provide is given in accordance with all applicable laws, rules and regulations, including proper disclosure to tax authorities."
November 8, 2017