Independent investigative journalism group Corporate Watch analysed the finances of 19 of the UK’s water and sewerage companies. It said six companies had exploited a regulatory loophole that government had chosen not to close.
Northumbrian Water, Yorkshire Water, Anglian Water, Thames Water, South Staffordshire Water and Sutton and East Surrey were named as companies that took high-interest loans from their owners through the Channel Islands stock exchange. These loans reduce taxable profit in the UK, due to the loophole, and go to the owners tax free.
The owners issued the loans through the Channel Islands stock exchange as “quoted Eurobonds”.
When a UK company pays interest to a non-UK company, it has to withhold 20 per cent of the payments and give it to the UK tax authorities. But if the loans are issued as quoted Eurobonds on a “recognised” stock exchange, such as the Channel Islands or the Cayman Islands, they benefit from an exemption that means no withholding tax is taken off.
The investigation found that £3.4 billion had been borrowed by the six companies using the process. Northumbrian Water was considered “the most brazen case” as it paid 11 per cent interest on just over £1 billion of loans taken from owner Cheung Kong Group.
When questioned by Corporate Watch Northumbrian said “it complies stringently with all corporate reporting and regulatory requirements as set out by Ofwat”.