Friday, 22 April 2016

Green Party Councillor Exposes developer British Land's Tax Haven Dealings

A Green Party councillor is challenging Lancaster City Council on its dealing with Canal Corridor developer British Land, after discovering its links with an offshore tax haven.

Green Party Councillor Tim Hamilton-Coxt has researched developer British Land and found it is holding its Canal Corridor property in the offshore tax haven of Jersey. After the justified furore over the Panama Papers, Councillor Cox is now calling on the City Council to make a stand against tax avoidance in Lancaster by freezing negotiations with British land, until the company commits to making all of its transactions and potential development profits in Lancaster (and arguably in the UK) subject to UK tax.

In 2008, Tim Hamilton-Cox uncovered the fact that the city council's then partner (Centros) in the development of the Canal Corridor site was controlled by a Centros company registered in the British Virgin Islands tax haven. Conservative and Labour councillors dismissed the Greens' concerns at the time. Their general attitude was that "Everyone's at it - so what can we do?"; one Labour councillor asserted that the fact of being based offshore was "not directly relevant."

Now, Councillor Hamilton-Cox has found that the city council's current development partner, British Land (BL), owns its property in the Canal Corridor through a Jersey property unit trust.

He says: “Years later the Labour-led city council is still actively engaging with a company, British Land, which is controlling its Lancaster assets in a tax haven. I believe that this is sending entirely the wrong message – that basically it's okay if companies try to avoid tax by using offshore arrangements. As we all know, this ultimately reduces the tax available to pay for public services.

"Last week, the leader of the council was optimistic about negotiations with British Land leading to a planning application which would include development of the city council's land-holding. Greens think that the city council should freeze negotiations concerning city council-owned land in the Canal Corridor until BL brings back to the UK ownership of land in Lancaster so that all its transactions and development profits here (if not the UK as a whole) are subject to UK tax.

"We have to call time on dealing with businesses that use offshore 'shell' companies to avoid tax and stop accepting it as some sort of business norm. I hope that Cat Smith MP will support this call given her strong condemnation of tax avoidance in the Lancaster Guardian last week."

In 2014 Councillor Hamilton-Cox led on a successful motion at full council which required companies wanting to do business with the city council to self-certify that they did not engage in tax avoidance measures as a condition of doing business with the city council. This motion has yet to be implemented in council procurement policy - despite a number of prompts from Councillor Hamilton-Cox that action should be taken.

UPDATE, 25th May 2016: Over on the British Land web site, they point out that because British Land is is a REIT, it must follow certain rules relating to money it distributes to shareholders, and how those distributions are taxed.

Their statement on their tax situation reads as follows:
90% of the tax-exempt profit from British Land's property rental business has to be distributed to shareholders. This is called Property Income Distribution, or 'PID'. British Land can also distribute income from its other activities, known as Non-Property Income Distribution, or 'non-PID'.

Dividends can be entirely PID, entirely non-PID, or a split between the two; the Board will decide the most appropriate split on a dividend-by-dividend basis. Sometimes the treatment of the Scrip Dividend Alternative may be different to the treatment of the cash dividend.

The tax treatment of PID and non-PID dividends is different. Non-PID dividends are treated like "normal" dividends paid by non-REIT companies. From 6 April 2016 the tax free Dividend Allowance will apply to non-PID dividends. Previously a tax credit of 10% was deemed to be deducted from the non-PID dividend payment.

Because PID dividends are paid out of British Land's tax-exempt profits, they are potentially taxable in the shareholders' hands as property letting income. PID dividends are usually paid to shareholders after the deduction of withholding tax at the basic rate of income tax (20%).

More detailed information can be found here and on the Reita website., it must follow certain rules relating to money it distributes to shareholders, and how those distributions are taxed.

90% of the tax-exempt profit from British Land's property rental business has to be distributed to shareholders. This is called Property Income Distribution, or 'PID'. British Land can also distribute income from its other activities, known as Non-Property Income Distribution, or 'non-PID'.

Dividends can be entirely PID, entirely non-PID, or a split between the two; the Board will decide the most appropriate split on a dividend-by-dividend basis. Sometimes the treatment of the Scrip Dividend Alternative may be different to the treatment of the cash dividend.

The tax treatment of PID and non-PID dividends is different. Non-PID dividends are treated like "normal" dividends paid by non-REIT companies. From 6 April 2016 the tax free Dividend Allowance will apply to non-PID dividends. Previously a tax credit of 10% was deemed to be deducted from the non-PID dividend payment.

Because PID dividends are paid out of British Land's tax-exempt profits, they are potentially taxable in the shareholders' hands as property letting income. PID dividends are usually paid to shareholders after the deduction of withholding tax at the basic rate of income tax (20%).

More detailed information can be found here and on the Reita website.

2 comments:

AntiStupid 124 said...

Another *balanced* piece from Virtual Lancaster giving no chance to British Land to respond. Obviously not within anyone's capabilities within this Green Party mouthpiece or the Green Party itself to acquaint themselves with tax law or REIT structures.

Virtual Lancaster said...

Our apologies for the delayed posting of the comment above. We've added British land's explanation of their tax status as a REIT to the story.