Private Eye's dig into Tesco's tax affairs continues. In the edition published today it has revelation of another tax avoidance scheme, this time based in Luxembourg. I guess that adds variety to the one revealed a fortnight ago in Zug, or the one about which Tesco is suing the Guardian, based in Cayman.

This time, as the Eye notes:

Sadly for Tesco the latest scheme, which involves Luxembourg companies forming English partnerships to earn interest tax-free, was outlawed in the last budget.

As I wrote at the time the Budget was being announced in Parliament, I was sure that some of the measures included in it were aimed in the broad direction of Cheshunt. It looks like I was bang on target.

So, what have they done? Again, to quote the Eye:

In October 2006 the firm set up four Luxembourg companies - Armitage, Cirrus, Cheshunt and Delamare, which immediately acquired Tesco's expanding operations in the US, Czech Republic, Slovakia and Ireland. The Luxembourg companies, it could easily be claimed, thus became holding companies and [so are] exempt from the [UK's] tax avoidance laws [for controlled foreign companies].

Tescos sought to exploit this. As the Eye notes:

Using English law, Armitage and Cirrus established the "Armitage English Partnership", whilst Cheshunt and Delamare set up the "Delamare Partnership". £826 million was injected into the Armitage partnership (less into Delamare) for lending onto to Tesco's legitimate business operations, generating a likely tax-free income of perhaps £50 million a year (though the partnerships don't have to produce accounts).

At this point the Tesco tax planners had cause to thank the German First World War occupation of the Grand Duchy as, under company law enacted at the time, the profits run up in the partnerships that the companies formed are not considered the companies' profits. Under UK tax law, Tesco concluded, this meant the companies were still considered legitimate holding companies and thus exempt from the anti-tax avoidance rules.

But as the Eye also notes:

HM Revenue and Customs doesn't agree. But, rather than leave the matter to the courts, chancellor Alistair Darling decided in this year's budget to "put beyond doubt" that the scheme won't work. The measure, announced his financial secretary Jane Kennedy last week, was "an important part of the UK's defences against tax avoidance".

One can't also help noticing that the Eye reports that Lucy Neville-Rolfe, who has been the person who has been protesting Tescos innocence of all charges laid by the Guardian, is company secretary of these structures. At the very least, that's going to give her a few problems if the Guardian case goes to court. But perhaps best of all is the comment made by Tescos to Private Eye:

We do resent the attempts by your publication and the Guardian to portray Tesco as a tax avoider when we pay more tax than most other companies. Tesco welcomes sensible debate about the UK tax system … but this cannot take place when leading companies and big taxpayers are automatically put in the dock for trying to discharge their duty to shareholders.

Pardon? Shall we get this clear? What you're saying is (I think) 'we're a big company paying a lot of tax who'd rather pay a lot less tax and we think this is our duty to shareholders although nothing in any law says it is and as a result we'll tax avoid to the limits of what is legal (as we're entitled to do) and to the furthest extremes of artificial structuring of complex offshore arrangements allowed within the way we interpret the law (as we're entitled to do) but when we're found out we'll say that it's wholly unreasonable of anyone to say so'.

Come on Tescos. Either be big enough to admit to that you're tax avoiding and defend it openly and honestly, or stop it. That's a simple, honest and available choice for you to make. But for heaven's sake stop claiming one thing and doing another. It's really not going to do your reputation any good to continue as you are.

And at the same time stop referring to the disproportionate tax bills you pay: it's still much less than a reasonable person might expect you to pay, as I've shown. And it's looking increasingly likely that's not by chance.

PS While you're about it Tescos can you explain why you choose not to file accounts for your Irish operations on public record, posting the group accounts instead? Is there something you don't want us to know? I know what you're doing is legal,but is it right? That's what I'm asking. And it would be good to know the answer.