How the brothers buying Asda for £6.8bn ring up a minuscule tax bill

The new owners of Asda have built a business empire fuelled by billions of pounds of debt, low tax bills and links to a string of global tax havens including Jersey and the Cayman Islands.

Blackburn-based brothers Mohsin and Zuber Issa on Friday sealed a £6.8billion deal with their private equity backers TDR to buy a majority stake in Asda from the supermarket chain’s US parent Walmart.

The pair – who own global petrol forecourts giant EG Group – have been hailed as an entrepreneurial duo from humble beginnings in a terraced house in Blackburn. Chancellor Rishi Sunak reacted by saying it was ‘great to see’ Asda returning to ‘majority British ownership’.

But an investigation by The Mail on Sunday has found that the Issa brothers’ stake in EG Group is held in the tax-friendly jurisdiction of Jersey. Documents obtained reveal a paper trail to a number of entities in other tax havens – Luxembourg, Dublin and the Cayman Islands.

EG Group’s huge £7.7billion debt pile also meant that interest payments and finance costs last year completely wiped out its £373million operating profit.

The structure means the loss-making group has paid just £55million in tax over five years – including two years when the company paid no corporate tax at all – despite total revenues of £37.5billion for the period. And more than half its total corporation tax bill arose from a windfall profit it made from the disposal of part of its business in Germany.

By contrast, Asda paid £94.5million tax on revenue of £23billion and £800million profit last year.

City sources said they believed the Issa brothers and TDR would borrow against the value of their stake in the Asda business to pay for the deal.

Until now, the Issa brothers’ meteoric rise has gone almost unnoticed outside the world of high finance. But in the past five years the Issas have quietly overseen tenfold growth at their EG Group business, which is headquartered in Blackburn but now spans the UK, Europe and America, with €20billion (£18.1billion) annual turnover last year.

That growth has been fuelled by a flurry of audacious acquisitions in an era of ultra-low interest rates using cheap debt from global financial markets.

New York-based credit ratings agency Standard & Poor’s earlier this year described its debt pile as ‘substantial’ against a ‘soft’ backdrop of weak economies, where many motorists normally using its petrol stations have slashed their petrol bills by working from home.

Documents obtained reveal a paper trail to a number of entities in other tax havens – Luxembourg, Dublin and the Cayman Islands

It is understood the Issas and TDR plan to introduce more Asda convenience outlets to forecourts as a path to growth for the supermarket chain, which one source last night said has become ‘unloved’ by Walmart.

Walmart, which will retain a stake, tried and failed to merge Asda – which uses the slogan Save Money, Live Better – with Sainsbury’s last year.

Tax experts told The Mail on Sunday there is growing concern about companies whose financial arrangements dilute or wipe out profits and corporation tax.

Amazon has been criticised for paying £14.5million in corporation tax a year from its UK services company when its UK sales are around £14billion. Like many other firms based offshore, it insists its overall tax contribution to the UK is much higher.

Scrutiny is likely to rise as the Government seeks to recoup vast funds pumped into coronavirus-hit businesses and the economy to avert a deep recession. 

The Blackburn-based brothers sealed a £6.8billion deal with their private equity backers TDR to buy a majority stake in Asda from the supermarket chain’s US parent Walmart

Last month Andy Higginson, chairman of rival Morrisons, urged the Chancellor to raise new taxes to pay for the economic damage caused by coronavirus, with a one-off levy from firms that funnel profits overseas through elaborate corporate structures.

Paul Monaghan, chief executive and co-founder of Fair Tax Mark, warned that highly-indebted businesses have little room to manoeuvre if their circumstances change or interest rates suddenly rise.

He said: ‘People are starting to wake up to the risk to society of having too many highly leveraged businesses that provide vital services. They fly close to the wind and, as soon as they hit a rocky patch, they just don’t have the reserves to live through it.

‘Food retail right now, especially if we go into another lockdown, is a national service. To see a major retailer being taken over by a highly leveraged entity would worry a lot of people.’

He said new rules capping the level of tax relief written off against interest rates mean companies such as EG Group are obliged to pay some corporation tax, despite losses.

‘If, as many people want, those rules were to be tightened the available capital for a companies like this would shrink,’ he added.

A report last year from the Tax Justice Network described the Channel Isles as ‘up there with the worst’ of the world’s most ‘aggressive’ tax havens, ranking Jersey as number seven. The Cayman Islands ranked in the top three alongside British Virgin Islands and Bermuda.

It is understood that Barclays is lead lender on a debt package of as much as £4billion to fund the Asda acquisition.

A source close to the brothers said they and the group ‘pay all the tax that is due’. Another said the new owners are preparing ‘a very big equity cheque’ to pay into Asda.

Walmart said in a statement on Friday: ‘The new owners will continue to build a strong and successful business, benefiting from fresh capital and expertise, as well as valuable links with the world’s largest retailer.’

Representatives for the Issa brothers and TDR both declined to comment.