COMPANIES profiting from schools and hospitals built under private finance initiatives in Scotland are based in tax havens such as Jersey and Guernsey.
An analysis carried out by the Sunday Herald has revealed numerous examples of PFI projects in Scotland which have owners based offshore.
The owners include an offshoot of Coutts & Co, which runs the bank used by the Queen and was recently named in the Panama papers which leaked details of secretive offshore tax regimes.
Campaigners have warned the lack of transparency around PFI contracts means it is impossible to establish how they are being financed and what tax is being paid.
The vast profits being made by selling on stakes in PFI projects in Scotland can also be revealed, with several million pounds being made through one single transaction alone.
The issue of PFI - also known as public private partnership (PPP) schemes - is back in the spotlight in Scotland following the ‘crumbling schools’ scandal which led to the closure of 17 schools in Edinburgh due to building safety fears.
Last week the Sunday Herald revealed the bill for PFI projects driven by the previous Labour administrations in Westminster and Holyrood will add up to £30billion for Scottish taxpayers over the coming decades.
However Joel Benjamin, researcher with campaign group The People Vs PFI, said having investors based offshore involved in the projects raised questions over where the tax revenue on profits was going.
He pointed out that unless more information about PFI contracts was made publicly available, it was difficult to establish exactly how they are financed and what tax is being paid.
He said: “The first thing is to make these contracts transparent and available in the public realm in all cases.
“Once they are there to be inspected we can start to make some observations. But until we can actually see them it is purely conjecture.”
When a PFI project is initially set up, the public body signs a contract with a Special Purpose Vehicle (SPV), which is a consortium of private sector investors. However companies can then sell on the value of their equity to other firms, meaning the ownership of the SPV can change.
In 2011, an investigation by the House of Commons Public Accounts Committee found investors had made bumper profits from buying up contracts and taking the proceeds offshore.
Dave Watson, Scottish organiser of Unison, said the links to tax havens had been an increasing feature of the refinancing of PFI schemes.
He said: “It probably wasn’t a feature of the original financing of PFI schemes, but it has become more of an issue in the refinancing of them.
“Essentially taxpayers are paying out over the top, but not even getting the return on the tax on profits - which are not insignificant - that these companies make.”
Examples of PFI projects where offshore companies have stakes include Midlothian Community Hospital. According to information published by the Treasury, at the end of March last year equity holders include 3i Infrastructure PLC, registered in Jersey, which has a 49.9% stake.
3i also has stakes in other PFI projects including Angus Schools, Gartnavel Royal Hospital and care of the elderly facility Findlay House, in Edinburgh.
The Treasury information shows the name and breakdown of equity owners in PFI projects between 1993 and 2006. But it is not always clear which company has the controlling interest.
East Dunbartonshire Schools PFI project is currently owned 50% by Innisfree Nominees Ltd, which is owned by Innisfree Group Ltd.
The main shareholders in this firm is Coutts and Co Trustees (Jersey) Ltd, based in Jersey and part of the taxpayer-owned Royal Bank of Scotland group Coutts.
Coutts, whose chairman is Tory peer Lord Waldegrave, was named recently in the leaked Panama papers for asking offshore law firm Mosack Fonseca to set up almost 500 offshore companies for its clients.
Semperian PPP Holdings, which has a parent company also registered in Jersey, holds the other 50% stake in this project, which built six new schools in East Dunbartonshire including Bearsden Academy, Douglas Academy and Bishopbriggs Academy.
Semperian PPP Holdings has involvement in other projects, including a 31% stake in the Glasgow schools PFI project and a 25% stake in a project which built new sewage treatment plants at Meadowhead, Stevenston and Inverclyde. It also has a 33% share in the Edinburgh Schools PPP2 project, the sister scheme to the PFI initiative at the centre of the schools closure in the city.
The Forth Valley Royal Hospital In Larbert is owned by a company called Palio (No 11) Limited, which is wholly owned by the Guernsey-registered JLIF Limited Partnership.
A major study by economists Margaret and Jim Cuthbert identified 51 companies involved in Scottish PFI projects in 2012 - including eight based in the Channel Islands which held a stake in 33 projects and just under 30% of the total capital value of all projects.
Their paper concluded: “There should be much greater openness about who owns PFI companies, including their ultimate controlling ownership. The Treasury should be put under pressure to do this job properly.”
PFI expert Dexter Whitfield, director of the European Services Strategy Unit think tank, said companies were not located in Jersey or Guernsey “by accident”.
He added: “They go there for tax reasons. It is incredibly complicated, but the number of PFI companies for the SPVs which are 100% owned offshore has been increasing all the time."
Whitfield has published an analysis which reveals the vast profits made from selling on stakes in PFI companies between 1998 and 2012.
He said because equity was often sold in “bundles” of stakes in up to ten different projects, it was sometimes difficult to track exact figures for individual projects. However his analysis - compiled by wading through sources such as company reports and business journals - shows transactions involving PFI projects in Scotland added up to £250million over 14 years.
This included equity in Highland Schools which was sold for £16.5million and a profit of £4.4million in 2009, adding up to an annual rate of return of 10.9%
In another example, a stake in Hairmyres Hospital in Lanarkshire was sold for £13.8million in 2008, netting a £8million profit and an annual rate of return of 13.9%.
An £800,000 stake in Falkirk Schools Partnership sold in 2004 resulted in a £240,000 profit – an annual rate of return of 85.7%.
Whitfield said while Stock Exchange regulations required a formal notice to be issued when a company acquires or sells a stake in a PFI company, it was often difficult to find out detailed information.
He said: “Half the time they never say where they bought the asset from, and half the time they don’t say what the profit was.
“It is total madness – it is public money and we are talking about billions of public money that needs to be accounted for.”
A spokeswoman for Coutts and Co said it could not comment due to client confidentiality and 3i Group also declined to comment. A spokesman for Semperian PPP Investment Partners Holdings Limited said the company is resident in the UK for corporation tax.
He added: “Semperian PPP Investment Partners Holdings Limited, the top company of the Semperian corporate group, is registered in Jersey since this allows the Semperian group to issue corporate bonds to its investors on the Jersey Stock Exchange which has a much lower administrative cost than issuing the bonds through the UK Stock exchange. These administrative savings are passed directly back to the investors in the form of higher returns.”
JLIF did not respond to request for comment. In response to the calls for more transparency, the UK Treasury said it already published a significant amount of information on PFI projects.
It also said PFI was reformed in 2012 and changes were introduced to make projects more transparent, including requiring the private sector to provide equity return information for publication.
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