§ Dr. Brayasked the Secretary of State for Energy if he approved the method used by the British National Oil Corporation in raising $675 million through a charity, the Berkshire Farm Centre and Services for Youth, which is exempt from the New York State franchise tax; and if he will make a statement.
§ Dr. J. Dickson MabonThe BNOC $825 million financing scheme, which my right hon. Friend approved, involves a non-subsidiary company—Britoil—borrowing the money and using it to make forward purchases of oil. This financing structure follows lines commonly adopted84W by United States oil and natural resources industries. United States law, banking regulations and policy prevented the bankers, investment bankers or advisers to BNOC owning such a vehicle. In this situation BNOC was advised to follow normal practice and have a neutral third party, specifically a charity set up the vehicle.
The vehicle will pay United Kingdom tax on any United Kingdom fee income and United States tax on all income there, at the appropriate rate. However, New York State, in which the charity chosen happens to be located, has a franchise tax, and I understand that charities in the state can be exempted from that tax. No question of tax avoidance by BNOC arises and the banks get no tax advantage.