Revera Inc., the long-term care home company owned by the Canadian Public Sector Pension (PSP) Investment Board that has seen hundreds of resident deaths during the pandemic, appears to shift taxable profits out of the United Kingdom into subsidiaries in countries with more favourable tax laws, according to a new analysis.
The private company, headquartered in Mississauga, Ont., owns and operates more than 500 retirement and long-term care homes in Canada, the United States and the U.K.
A report from the Australian Centre for International Corporate Tax Accountability and Research analyzed Revera’s U.K. operations and structure because the British reporting requirements make public information not available in Canada or the U.S.
“What we found [on] Revera’s operations in the U.K. was deeply troubling,” report author Jason Ward told HuffPost Canada. “It appears they’ve set up structures there to avoid tax on significant profits that they make on the U.K. care-home business that they’re invested in.”
Earlier: NDP Leader Jagmeet Singh calls for an end to for-profit long-term care. Story continues after video.
Revera has 55 managed and 33 owned communities in the U.K., according to its website.
Welltower Inc., Revera’s joint venture partner in the U.K. and the largest health-care real estate investment trust (REIT) in the U.S., reports “substantial” net operating income in the U.K. — Ward estimated it to be about US$84.8 million on properties owned by Revera-controlled companies. But those companies reported “little or no profit” in the country.
Either Revera’s relationship with Welltower is on “highly unfavourable terms,” or the Canada-based company is engaged in aggressive tax avoidance schemes, the report says.
‘... That money is disappearing’
Revera’s complex structure includes ownership of tax haven-based subsidiaries that have Revera executives in key positions. For example, Revera CEO Thomas Wellner is a director of a subsidiary registered in Jersey island, and other U.K. companies that own subsidiaries in Guernsey and Luxembourg.
The subsidiaries sit within Revera’s complicated global corporate structure and appear to use what Ward said amounts to profit-shifting tactics to move profits to jurisdictions with more favourable tax laws.
“We know that these companies, the care-home companies, operating companies in the U.K., are collecting hundreds of millions of dollars, of pounds in fees from residents,” said Ward, who is also the principal analyst at the centre that produced the report. “And then that money is disappearing through these corporate structures and through tax havens.”
In response to questions about the report from HuffPost, a spokesperson for Revera said the company does not break any laws.
“We can confirm that Revera structures our affairs in a manner that abides by all laws in the jurisdictions where we operate,” Susan Schutta said by email.
PSP Investments offered a different response, arguing that Revera does not have to pay income tax or capital gain tax in the U.K., a claim that Ward and other experts find hard to believe.
“Revera is considered a crown immune corporation in the United Kingdom and therefore is typically not subject to income or capital gain tax in the UK,” spokesperson Verena Garofalo told HuffPost by email.
A spokesperson for the U.K. government’s revenue and customs department said it could not comment on specific taxpayers.
“The idea that it would be immune from UK income tax seems absurd.”
But Ward said it is unlikely that crown immunity would apply to a subsidiary of a Canadian crown corporation.
“Yes PSP is immune from income tax in Canada, but Revera is not,” he told HuffPost in an email. “Revera is a private commercial company, not an investment manager as PSP. The idea that it would be immune from UK income tax seems absurd.”
Richard Murphy, an accountant and visiting professor at Sheffield University Management School and Anglia Ruskin University’s Global Sustainability Institute, agreed.
He pointed out that not even the Bank of England is exempt from paying corporation tax in the U.K.
“I cannot see how a Canadian corporation would get an exemption not available in the UK to UK government-owned entities,” Murphy said by email.
Complicated structures appear to shift profits out of the U.K.
Revera and Welltower operate care homes in the U.K. under three brands: Sunrise, Gracewell and Signature. These subsidiaries are owned through a complex structure of holding companies, some of which are registered in tax haven countries.
Revera has a 65-per-cent controlling interest in Sunrise Senior Living, one of the largest seniors’ living providers in the U.S.
Sunrise Senior Living’s U.K. tax strategy — which applies to both Sunrise and Gracewell’s U.K. companies — is to comply with U.K. tax laws and regulations and all companies it operates in, “while considering any government sponsored tax reliefs and incentives available to it.”
Sunrise Senior Living Limited is the top-level holding company for Sunrise and Gracewell.
It reported revenue of more than 8 million pounds, but administrative expenses of more than 9 million pounds resulted in a loss. Meanwhile, Welltower, which also has a 34-per-cent indirect ownership interest in Sunrise Senior Living Limited, reported $327.3 million in net operating income from the company’s global properties in 2019. That included US$73.5 million from Sunrise properties in the U.K.
“[Sunrise is] using these complicated corporate structures to shift operating profits out of the taxable subsidiaries in the U.K.,” Ward told HuffPost.
Gracewell, a Sunrise brand, similarly uses properties owned through tax havens in Luxembourg, he said.
A third Revera subsidiary, Signature Senior Lifestyle, is owned by Revera through Guernsey holding companies, Ward’s report states. It “repeats the same pattern of losses” and pays dividends within its subsidiaries, which are not taxed in the UK.
Ward is calling on Revera to disclose its full U.K. corporate structure and explain the relationship between the entities, including those in the tax havens.
“If there is no other reason for its complexity, except to minimize U.K. income tax payments, immediate measures should be taken to restructure the business in a clear and transparent way,” his report states.
Unless that full transparency is provided, the report calls for U.K. authorities to audit all of Revera and Welltower’s U.K. care-home businesses “to ensure full compliance with all tax and reporting requirements and accurate and timely information.”
‘Clearly not a responsible business practice’
Arthur Cockfield, an expert on tax law and professor at Queen’s University who reviewed Ward’s report, said he’d characterize Revera’s conduct, though “perfectly legal,” as aggressive international tax planning.
“They’re making deductions in high tax countries like the United Kingdom, and those expenses flow through to tax havens,” he told HuffPost.
“There’s a whole bunch of perks planted in the Income Tax Act in Canada and also in the U.K., that give these sorts of tax breaks, and an aggressive scheme is one where tax advisers have put together a plan that tries to significantly reduce global tax liabilities, while still complying with all relevant tax laws.”
Ward also emphasized his findings don’t point to illegal activity.
“But it’s clearly not a responsible business practice to be [using] tax avoidance strategies,” he said.
The report states although these practices may be legal, they’re “completely unacceptable” and do not align “with the spirit of the law.”
Hundreds dead of COVID-19
Hundreds of residents have died of COVID-19 in Revera’s Canadian long-term care homes since the pandemic began. Families of residents have reported severe staff shortages, a lack of measures to isolate and cohort residents who test positive, shortages of personal protective equipment and poor communication about their loved ones’ health.
Revera, along with Sienna Senior Living, faces a $100-million proposed class-action lawsuit that alleges it was negligent in its pandemic response, leading to deaths related to COVID-19.
At least 19,000 care-home residents died of COVID-19 in the U.K., although that number could be higher. A spokesperson for the Office of National Statistics told HuffPost the government does not provide the death tolls for individual homes or companies.
PSP Investments’ spokesperson said health and safety has always been a priority for Revera.
“Our confidence in Revera’s dedicated management and staff is unwavering as they continue to comply with public health authorities’ pandemic response guidelines,” her email said. “Revera is committed to working with all levels of the Canadian government to find the right solutions for the long-term care industry and discuss lessons learned from the ongoing pandemic.”
Public Sector Pension board has used tax havens before
There have been growing calls in Canada to nationalize Revera.
Jean-Yves Duclos, president of the Treasury Board and federal minister responsible for the PSP Investments board, has said the fund is independent and operates at an arm’s length from the federal government.
In 2014, the CBC reported the PSP investment board was found to have “set up a complex scheme of European shell companies and exploited loopholes that helped it avoid paying foreign taxes ….”
Those loopholes were legal, an expert told the CBC, but their use raised questions as Canada and its allies pledged to tackle tax avoidance.
PSP was also implicated in the Paradise Papers in 2017, which revealed the board used tax havens for other global investments.
In a statement to the CBC, the board said it “structures [its] foreign investments to maximize the after-tax returns,” and has a responsibility to its more than 20 million beneficiaries to seek a maximum rate of return. At the time, PSP said 85 per cent of its assets were abroad.
Ward’s report states Revera’s “opaque operations” and high death toll appear to violate PSP’s own responsible investment guidelines, as well as the United Nations’ Principles for Responsible Investment, a set of voluntary principles that encourage signatories to incorporate issues of environment, social and corporate governance issues into their policies and practices.
Ward’s report said Revera’s U.K. investments appear to violate the Organization for Economic Cooperation and Development (OECD) guidelines for multinational enterprises, which say businesses should act in both the “letter and spirit of the law.”
Calls for greater transparency, tax reforms in Canada
In addition to calling for clarity on Revera’s U.K. operations, the report makes several other recommendations, including disclosure of which operating companies and facilities it owns in the U.S.
It also calls for the long-term care-home operator to provide more transparent reporting on its finances, operations and corporate structure in Canada, which could be a “precursor for making [it] a genuinely publicly owned and operated company.”
The report also recommends the PSP adopt a responsible investment policy “that supports the elimination of aggressive tax avoidance strategies in all its portfolio investments, particularly investments like Revera, which are 100% directly owned by the pension fund.”
PSP’s spokesperson said Revera’s structure is consistent with their responsible investing policy, and “was either inherited at acquisition or put in place for other corporate purposes.”
Canada’s federal government should also consider broader tax transparency reforms, the report states.
“All the companies over a certain size should be required to have publicly accessible annual financial statements,” Ward said. “And there should be some way to kind of access sort of ownership structures and ownership information as there is in the U.K., and frankly, in Jersey and Guernsey and Luxembourg as well.”
“All the companies over a certain size should be required to have publicly accessible annual financial statements.”
Cockfield, the Queen’s professor, said he agrees with the report’s calls for increased transparency and disclosures. He said large institutional investors are increasingly considering ethical investment practices. He noted the work of the OECD, the world’s main international tax organization.
“And so they’re trying to take account of government interests, and to reduce this aggressive international tax planning by Revera and others,” he said. “But ultimately it’s up to the … governments in the OECD countries to take action.”
Ward also called for the feds to take a closer look at the PSP and other public sector pension funds to ensure they’re not using aggressive tax avoidance on international investments.
“There is evidence that Revera, and the investment in Revera in the U.K., is an example of a broader problem of corporate tax avoidance by public sector pension funds, and it’s really something that needs to be addressed with some urgency.”
With files from Emma Paling