I met with Tim Voak, Group Tax Director and Emma Reynolds, head of Government Affairs at Tescos yesterday. It's true that they had not planned to meet with me. They thought they were meeting with Austin Mitchell who has tabled an Early Day Motion on Tesco's tax affairs as reported in the Guardian recently, but Austin invited me to join him to interpret what was being said.

It's clear that Tescos is on what might be called a charm offensive with regard to its tax affairs, although, I might add, without much charm on view. The reason is simple: as is now widely known, Tescos have been aggressive in seeking to prevent reporting of the Guardian's story on tax avoided on their joint venture property deals. What they sought from the meeting I attended was to convince Austin Mitchell that his Early Day Motion was wrong and that it should be withdrawn. I know the Tescos team saw other politicians during their visit to Westminster.

The meeting was interesting. I should add in advance of commenting that what I say here is based solely upon my own reading of what the Guardian has reported, my reading of Tescos accounts, my understanding of UK tax law and nothing else. I have not seen any of the documents the Guardian used to write its story, and nor have I seen any of its correspondence with Tescos.

Voaks explained to Austin Mitchell that Tescos had wanted to do two things in undertaking this deal. The first was to convince its shareholders that the properties on its balance sheet were worth a lot more than it had paid for them, and as such should not be undervalued by those shareholders. The second objective was to raise cash, eventually some £3 billion in all. To achieve these objectives Tescos had created what, Voaks admitted, were some "immensely complex" structures. This, he said, was necessary to ensure that the deals Tescos had to offer would appeal to the widest possible audience of potential purchasers of the properties, both in and out of the UK.

As result of this objective it had been necessary for the joint venture structures to be in Cayman, although he admitted another tax haven would have done quite as well before adding, somewhat tellingly, that "Cayman is a wonderful place as it does not charge tax".

The result of this effort was that Tescos had created what Voaks called a "tax neutral structure" for the purchaser of a 50% share in each of the joint ventures Tescos is planning. When pushed by me though as to what precisely "tax neutral" meant he said it meant a structure "not subject to UK tax" which is, of course not quite the same thing for those of us in the UK. In their definition of "tax neutrality" what Tescos has created is an investment structure which shifts rents and interest paid by Tescos out of the UK and its tax net whilst Tescos still enjoys tax relief on those payments. Now, and I admit this, Tescos is not the recipient of those payments but it has deliberately created the structure that achieves this goal even through the whole deal relates completely and utterly to the management of UK land and buildings. How that is "tax neutral" is a moot point. I'll return to it below.

I'll also venture that Tescos did not do this without self interest. I am sure that it used the 'advantage' that structure provided when compared to an equivalent UK based entity to ensure that a better price was secured by Tescos, either on the sale of the properties, or on the rental charge or on the interest rate. The latter two are noted in its 2007 accounts, and they are indeed low. As such I cannot see for one minute how Tescos can claim it has not undertaken tax planning to avoid UK corporation tax on this deal: it quite clearly has done just that. Voaks, I stress, did not comment on this suggestion.

What Voaks did not seek to deny was that Tescos had created an offshore structure.

What Tescos did not also seek to deny was that the structure it had created avoided stamp duty. But when I said this was tax avoidance Voaks denied it. He said it was stamp duty that was not being paid. Stamp duty, he implied, is not called tax: it is a duty. You might get some impression of the quality of his arguments as a result.

Now on £6 billion of property deals at 4% the tax so avoided might have run into hundreds of millions of pounds. Call it a hospital or so not funded as a result if the entire plan had worked, as Tescos clearly hoped it would although I gather that the particular ruse used in these early deals has now been blocked by HM Revenue & Customs (and see this budget blog which seems to confirm this). I suspect some other route might be planned instead, but I would stress I did not put this point to Voaks. However, given the pattern of tax haven abuse that Tescos pursues (moving its VAT avoidance scheme from Jersey to Switzerland for example when Jersey shut the Tescos operation down) I see no reason to think otherwise. In that case this stamp duty exercise puts those school computer vouchers that Tescos is giving out right now into sharp focus, since Tescos say they've been worth a total of £118 million since 1992. Less maybe then than the stamp duty avoided on this whole deal if Tescos continue to find ways round this charge. So much for its corporate social responsibility.

But let's be clear what had also happened by this point in the discussion. By now Tescos had conceded they had created an "immensely complicated" structure that was offshore, that did have a tax avoidance motive (because stamp duty is tax) and that was designed to save UK corporation tax, even if not by Tesco itself. I note that the thrust of the Guardian's main argument was:

Now the supermarket group has set up a network of highly complex structures involving offshore tax havens to sell and lease back some of its £28bn-worth of stores that will enable it to avoid what could be up to £1bn in corporation tax.

Quite a lot of this had already been conceded since it was already clear that offshore structures with the aim of avoiding tax had been created, and Tescos admitted this in the course of our discussions, in my opinion. All that was left to debate was how much the tax saving on the deal was and whether any part related to a corporate tax saving on the disposal of the properties subject to the deal. I pursued this point with Voaks in a number of ways after he had chance to make his pitch on this point.

That pitch was that Tesco had entered into a 50:50 joint venture on the properties disposed of. A half interest in each of the properties in question had, he said, been sold to the joint venture company in Cayman that had been sold on to the third party joint venturers. Tescos had kept the other 50% interest in each of the stores in question in the other company that was a partner in the Cayman LLP joint venture. The company owning Tesco's half was, he stressed, UK resident and taxable in full in the UK. But each company in each joint venture was a 50:50 partner that jointly held the properties in Cayman and leased them back to Tesco under the umbrella of a limited liability partnership, a structure not envisaged or in common use when much corporation tax legislation was created.

He said that as such Tesco had made a partial disposal of each property and as such UK capital gains could not have been due on the share it retained since it had not sold that 50% interest, which all sounds very plausible. Except Tim Voaks had not expected to meet someone who knew a bit about capital gains taxation groups for UK corporation tax purposes.

To make sure of my ground I pursued Voaks on the 50:50 claim. Was it absolutely this ratio, I asked? The Guardian report had implied each of Tesco and the joint venture partner had 49.95% and a general partner had 0.1%. He was, however, adamant it was 50:50. Under pressure he said half of the general partner had been sold to the joint venturer in each case to ensure that this was so.

Why was 50% so important, I asked? To make sure that the profit on disposal could be recorded in the group accounts was the response. If Tescos had held anything over 50% the profit would have been consolidated in the group accounts and would as such have not been reported in the results, which it was keen to do. The answer seems entirely plausible. I accept it.

So why, I said, do a 50:50 deal? Why not instead sell half the number of stores and do a leaseback on them? Again Voaks answer is plausible. It was, he said, because Tescos wanted to keep control of the stores for trading purposes.

So now we have Tescos wanting to appear to give up control to record a third party profit and yet keep control of the properties in question, according to Voaks. A standard 50:50 joint venture company in the UK might have done this, but it would have posed a massive tax problem for capital gains. The reason is that capital gains groups for UK corporation tax purposes include all companies subject to more than 75% common control. If there is 75% common control then assets may be moved within such a group without a capital gains charge arising on the movement of an asset between group companies.

The issue is slightly complicated because 75% control is extended down the group, so that so long as a subsidiary is a 75% subsidiary of a 75% subsidiary it is still within the ultimate parent company capital gains group subject to one enormous caveat, which is that the moment the group ceases to have more than direct 50% control of the asset then the capital gains group is broken and a capital gains tax charge arises on the whole current value of the asset then leaving the group even though part (maybe exactly 50%) of it is still under ownership of that group.

So, for example, a 75% subsidiary of a 75% subsidiary of a group is 56.25% controlled by the group and remains within its capital gains group. A 90.66% subsidiary of that 75% subsidiary of a 75% subsidiary is indirectly 51% controlled by the ultimate parent company and so is within its capital gains group. But an 87.11% subsidiary of a 75% subsidiary of a 75% subsidiary is 49% directly controlled by the ultimate parent company and is not in its capital gains group. If an asset that is owned by the ultimate parent company is transferred to this 87.11% subsidiary of a 75% subsidiary of a 75% subsidiary then it leaves the capital gains group and is subject to a full capital gains charge on disposal even though for accounting purposes it has never left the group.

50% is the tipping point in this. If an asset is 50% controlled by someone else then it's left your group for group capital gains purposes. But Tescos had to give up 50% control of the stores or in this case it could not record a 50% third party profit as having been made for accounting purposes which was key to its plan, according to Voaks.

The dilemma Tesco faced was on how to dispose of 50% control of an asset and yet keep it within its capital gains group and so pay no tax itself on this asset leaving its tax control, albeit (and this I accept) it always assumed it would pay tax on the part disposed (and I accept its assurance that it has done that). A conventional joint venture through a company would not have done this: a 50:50 company would have crystallised the charge. That would have meant the deal was dead, I suspect (although I did not ask this). And it was the desire to solve this dilemma, I believe (although Voaks did not agree with this) as well as the desire to create a "tax neutral" structure for the joint venture that motivated the "immensely complicated" structure of the deal.

By transferring all the properties into one member of the Cayman LLP in the first instance, and then having that make a part disposal of half of each asset to the other company that was a partner in the LLP, which LLP then provided the joint venture "wrapper" meaning that one joint venture entity retained control of the properties for legal purposes (almost certainly through the declarations of trust referred to in the Guardian article) Tescos always retained 100% tax control of the half interest in the properties retained in its subsidiary that was a member of the partnership whilst legally disposing of the other half interest for accounting purposes. It also happened to save stamp duty on the way. It accounted for each half sale of a property as a part disposal of each property as a result, giving rise to a tax liability on each half disposal of a property rather than crystallising a charge on the property as a whole on its transfer into a 50:50 joint venture, even though that is exactly what the substance of the deal is, the LLP achieving this result in fashion never envisaged by corporation tax legislation.

Now, let's be clear, for the sake of doubt. I accept that Tescos will have paid tax on the half interest it disposed of to the joint venture company it did not eventually own. I also accept that what it has done appears to have been legal at the time it did it. No accusation of any impropriety is being made here, at all.

What I am saying is that due to the complex tax avoidance structure adopted the intent of corporation tax rules has been subverted (which is what tax avoidance is, in my opinion): the properties have remained in the Tescos capital gains group and, in its words, under its control even though the ownership stake has been reduced to 50%. Under corporation tax rules one would expect that fact to have a given rise to a tax charge on the remaining proportion as well. That's exactly what the rules state: reduce control to 50% in a joint venture arrangement and expect to pay tax as if the property has been entirely disposed of. And yet Tesco will pay no such charge, it thinks (although as yet, they admit, the Revenue have not necessarily had time to raise question on this issue).

I said to Voaks that this was tax avoidance, and of the sort that the Guardian alleged since tax has not been paid on the disposal of properties in a way I would have expected. I must, in fairness, say he categorically denied this. He said that this arrangement was not tax avoidance and could not be considered so because using it no tax was due and therefore no tax had been avoided.

I consider this argument disingenuous. To say that tax avoidance has not taken place because no tax is due is wholly illogical: no tax payment was the planned outcome of the avoidance so having no tax liability is not evidence that there has been no avoidance. It is absolute evidence that there has been avoidance, in my opinion. The absence of a tax bill is not the avoidance, it's the steps taken to ensure that is the case that is the avoidance and there can be no doubt that Tesco took many steps to ensure that was true. Its "immensely complicated" structure was the avoidance exercise.

Tescos argument is, by the way, the same as that used by Philip Green who said exactly the same thing to the BBC when justifying that he had not avoided tax on the on the £1.2 billion dividend paid to his wife a year of so back. He also said there was "no tax has been avoided because no tax was due".

Voaks clearly expected us to believe that. But I don't, not for one minute. The only reason no tax is not due is not accident or chance. It is because an "immensely complicated" structure has been put in place to ensure that tax has not been paid, quite contrary to the spirit underlying UK corporation tax rules laid down by parliament and using an offshore structure to achieve that objective. In the circumstances I am quite categoric: the choice of that structure constituted a tax avoidance exercise which achieved its objective in that no tax was paid when the contrary would be expected by an informed person, like me. In addition Tescos ensured that the structure that they used was not tax compliant in that it moved the centre of taxation of UK property out of the UK and out of the UK tax net. This I also consider to be tax avoidance by it, from which it must have expected to benefit (and no doubt did through the low rental yields it paid on these properties according to its annual accounts for 2007). As such this exercise was also an action in tax saving for which Tescos was entirely responsible capable of being added, in my opinion into the tax loss calculation the Guardian might have used since Tescos (and no one else) created that loss.

In this case I think the claim the Guardian made appears justified. All I cannot prove is the quantum of the saving. I doubt anyone ever will.

So, let me summarise:

1) Tescos did set up a network of highly complex structures;

2) These did involve offshore tax havens;

3) They did relate to the sale and lease back of some of its £28bn-worth of stores;

4) They will avoid what could be up to £1bn in corporation tax as a result, although I will also admit it might be less - and I suspect we'll never know.

These are the accusations the Guardian levelled at Tesco. Bar irresolvable uncertainty on the quantum of the deal the case seems to have been resolved against Tesco on the basis of my discussion with their Group Tax Director, yesterday.

It also so happens that:

5) They did seek to and actually did avoid stamp duty in a significant amount;

6) They set up offshore structures intending to ensure that no tax was to be paid on rents paid on UK properties in ways that I consider not tax compliant, and I suspect did indirectly benefit from doing so or I can see no justification for this action on their part.

In the circumstances the fact that Nick Clegg repeated Vince Cables' previous accusation that Tescos were avoiding tax in tax haven deals in today's budget debate appears justified comment by him. The fact that I understand from Austin Mitchell that he will not be withdrawing his Early Day Motion also appears justified.

I really cannot see why Tescos are making such a fuss either. After all, they said they "had a duty to operate as tax-efficiently as possible". That's all I'm saying they did, using their definition of tax efficiency. Why are they so embarrassed to be fulfilling what they claim was an obligation imposed upon them? I'm bemused, but a lot of what they said yesterday left me baffled by their logic, so perhaps I really should not be surprised at all.

But on one thing I am clear: I think it's time they backed off their demand that the Guardian apologise. I just can't see grounds for the Guardian to do so.