Our exposé of the Eurobond tax exemption scandal raises questions that need answers

There is no shortage of fuel for public outrage here

Is it any wonder that corporate taxation has become a source of such controversy? After five years of economic torpor and deep government spending cuts caused by the excesses of the banks, the perception of big business of any kind not paying its share is understandably incendiary. Nor is there any shortage of fuel for the public outrage. With Starbucks, Google and Amazon among the big names barracked for their – albeit legal – sleights of hand, the arcane terminology of the Double Irish has crept into the lexicon.

During the past week, The Independent has taken matters a step further by exposing the extent to which just one of HM Revenue and Customs’s tax exemptions is taking a chunk out of the revenues flowing into the public purse.

The scheme in question is simple enough. Rather than buying shares in a British company, an international investor makes a high-interest loan to it instead; but by routing repayments through a designated stock exchange such as the Channel Islands, the 20 per cent “withholding tax” usual on overseas interest fees is avoided. Meanwhile, of course, the UK group records much lower profits, so it, too, pays less tax.

Take, for example, Spire Healthcare. The company was lent £760m by its private-equity owner, Cinven. Thanks to interest payments totalling £81m last year alone, the private hospitals group cut its UK tax bill by an estimated £20m.

The Cinven/Spire Healthcare arrangement is just one of many. As this newspaper has detailed this week, the list of ostensibly British companies minimising their bills in this way is a long and varied one, from the lottery operator to high street retailers to transport schemes.

The problem, of course, is that the mechanism is not only legal, it is deliberate. The “quoted Eurobond exemption” was introduced in 1984 with the specific purpose of encouraging foreign investment in British business. And when it was reviewed last year, HMRC’s conclusion – reached with the help of, among others, the Big Four accountancy firms – was that changing the system was not advisable.

It was upon this that the Prime Minister relied when he tried to brush off a parliamentary question on the topic this week. But the evidence is inconclusive. The most conservative estimate of how much the Treasury is forfeiting comes in at £200m per year; more likely, the total is more than double that. Furthermore, the issue is emblematic of the fundamental tension between the Government’s crusade against tax avoidance and its desire to ensure that Britain is “open for business” in an increasingly competitive global marketplace.

There is, of course, always a trade-off. David Cameron’s efforts to raise international tax rules at the G8 are no fudge. Unilateral action would come with a cost. But this week’s exposé raises the same question in reverse: in this instance, is it the price of inaction that is too high?