The exemption is known as the quoted Eurobond exemption, a loophole HM Revenue & Customs considered restricting in 2012 but never took action (Reuters)
Firms running NHS care services are avoiding millions of pounds in tax through exploiting a legal loophole.
The Independent newspaper and not-for-profit-group Corporate Watch claimed that companies were cutting their taxable UK profits by taking high-interest loans from their owners through the Channel Islands Stock Exchange.
The organisations make large interest payments to their parent companies, which they are able to reduce their bottom line and cut their tax bills.
The exemption is known as the quoted Eurobond exemption, a loophole HM Revenue & Customs considered restricting in 2012 but never took action.
An HMRC spokesman told the newspaper: "In March last year we ran a consultation to consider aspects of the taxation of interest including the circumstances in which the exemption from withholding tax on quoted Eurobonds would apply.
"The proposed amendment to the exemption would have applied to companies whether their customers were in the public or the private sector, but in the light of concerns about the possible negative impact on inward investment it was decided to keep this complex area of tax law under review."
The Independent identified nine companies thought to be benefiting from the practice: Partnerships In Care, Independent Clinical Services, Priory Group, Acorn Care, Tunstall, Lifeways, Healthcare At Home, Spire Healthcare and Care UK.
"Companies have a duty to pay their fair share of tax relative to the profits they make in this country. Yet it seems every week brings a new revelation of another business that is using artificial structures to move profits out of the UK, seemingly for no purpose other than to avoid tax," said Margaret Hodge, chair of the Public Accounts Committee.
"The case of these private health companies, which The Independent has brought to my attention, I find particularly depressing. These are companies who get their income overwhelmingly from taxpayers' money, for the purpose of providing a vital public service, yet do not appear to be making their fair contribution to the public purse."
Tim Hames, director general of the British Private Equity and Venture Capital Association, stated that the quoted Eurobond exemption is designed to "encourage inward investment" by global investors, "many of them pension funds who are exempt from tax".
"Those investors who are not exempt pay tax on the interest. Removing the exemption would mean less investment coming into the UK, and into social care providers where it is desperately needed. HMRC reviewed this matter last year but accepted the investment case for its retention," said Hames.
A spokesman for Spire and Partnerships in Care told The Independent that the arrangements "are common across the private equity industry" and interest levels were "reviewed and agreed with HMRC".
Independent Clinical Services has not responded to IBTimes UK's request for comment at the time of publication.
But spokespeople for Healthcare at Home, Lifeways, Priory Group, Care UK and Tunstall told the newspaper that the companies were fully compliant with UK tax laws.
A spokesman for Acorn did not deny using the tax loophole, but told the newspaper that the analysis was inaccurate because it was "based on incomplete information".
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