The United Kingdom?s public accounts committee yesterday attacked a controversial deal between a Bermuda-based company and England?s Inland Revenue and HM Customs and Excise.

The deal ? inked in March 2001 ? saw Inland Revenue and Customs transfer the ownership and management of 570 properties to Bermuda-based Mapeley Holdings Limited in a 20-year private finance initiative designed to reduce running costs. On signing the contract with the Departments, Mapeley transferred the freehold and long-leasehold properties to a company based in Bermuda. As a result, any capital gains made by Mapeley on the sale of the properties would not be subject to UK tax.

In a report titled ?PFI: The Steps Deal?, the committee found that the potential saving of taxpayers? money ?far outweighs? any likely loss resulting from tax avoidance. However it said the deal was ?a very serious blow indeed? for the tax-collecting services ? now merged as HM Revenue and Customs ? to have entered a contract with ?tax avoids?.

Conservative MP Edward Leigh, who is Chairman of the Committee of Public Accounts, said the deal gave the wrong example to others.

?It we all behaved like this, then there would be a lot less tax paid to the Revenue.?

The committee also found that in negotiating the deal, HM Customs and Excise and the Inland Revenue accepted ?by far the lowest price on the table?.

?A potential saving of almost ?500m was clearly attractive but there were significant weaknesses in the way the deal was negotiated which should be avoided in future PFI arrangements,? Mr. Leigh said, adding that the departments failed to clarify until late in the negotiations what Mapeley?s tax plans were, and failed to include a discount to reflect potential future tax avoidance in the price.

?It is incredible that the Inland Revenue, of all departments, did not, during contract negotiations, find out more about Mapeley?s structure,? he said.

?Departments entering PFI arrangements need to know more about whom they?re doing business with and ensure that potential losses to the Treasury are taken into account when assessing overall costs and benefits.?

The report also noted that there are still outstanding issues four years into the contract. A performance measurement system, vital to any PFI arrangement, has yet to be fully implemented.

A spokesperson for Revenue and Customs told The Times newspaper however that the deal had in fact been settled a few days before the report went to print. The performance measurement system is due to go into effect on July 1.

The report is seen as a blow to Bermuda-based Mapeley which last month confirmed plans for its flotation on the London Stock Exchange to raise funds to buy office properties.