DARKNESS AT SUNRISE: UK CARE HOMES SHIFTING PROFITS OFFSHORE?

Following on from this report on the high risk to investors (and their staff and residents) of exposure to care homes, we get this daming exposure of UK companies offshoring their profits owned by a Canadian public sector pension fund. 

See UNISON response

Well done to CICTAR for exposing this. 

"COVID-19 deaths in UK care homes, estimated at over 30,000, have exposed underlying and systemic problems in the care sector. Placing the profit motive at the heart of the social care system in the UK has undoubtedly contributed to increased infection rates and raised the death toll. 

Under-staffing and low pay are one side of profit maximisation. 

The other side, largely unseen, is aggressive tax avoidance in a sector heavily reliant on a public funding. 

This report outlines how three UK care home operators, with more than 60 homes, collect hundreds of millions of pounds in resident fees, while shifting profits offshore through complex corporate structures and tax haven subsidiaries. 

These three operators reflect a broader pattern across the UK care sector now dominated by private equity investors seeking to extract and offshore profits. The three UK care home companies – Sunrise, Gracewell and Signature Senior Living – are owned by Revera, the second largest care home operator in Canada. Revera, facing scrutiny for COVID-19 deaths, is 100% owned by the pension fund for Canadian federal government workers, a Canadian Crown corporation. 

Aggressive tax avoidance on UK care homes appears to violate the pension fund’s own responsible investment principles. In the UK, and globally, there is an urgent need to end the use of tax havens and contrived corporate structures specifically designed to reduce or eliminate tax liabilities where profits are generated. Aggressive tax avoidance schemes should not be tolerated anywhere, but are particularly egregious in the UK’s publicly supported but deeply troubled care sector. 

KEY POINTS: 

• The three UK care home operating companies, despite charging residents more than £225 million in fees in 2019, report little or no profit in the UK and even claimed multiple tax credits. 

• Tax haven subsidiaries – in Jersey, Guernsey and Luxembourg – own UK care homes as part of complex corporate structures apparently designed to extract and offshore profits. 

• Reports to the shareholders of the joint venture partner in the three UK care home companies, a large US listed real estate company, indicate US$84.8 million in net operating income from these care homes in 2019. In stark contrast, the three private UK care home companies reported combined losses of US$12.6 million in the most recent year. 

• The use of tax havens, complex related party transactions and other artificial arrangements, including Scottish Limited Partnerships, allow foreign investors to avoid UK income tax on profits extracted from UK care homes, which have been hard hit by COVID-19 and are heavily reliant on tax-payer funding. 

Residents and family members, as well as predominately female care workers, suffer the direct consequences of profit extraction from the UK care sector. However, when global investors avoid tax by shifting profits offshore everyone in the UK suffers. 

While private payments by residents drive profits, they are underwritten by government spending on public health. Aggressive tax avoidance is unacceptable by any corporation, but particularly egregious in the care sector. This case study of tax avoidance by care homes – controlled by a public sector pension fund – is a clear demonstration that the UK care sector needs urgent reform to ensure high quality care and greater transparency and accountability on public spending"