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Foreign energy and water firms found avoiding tax payments Reuters

Nine privately owned water companies in Britain have reportedly avoided big amounts in taxes despite making huge profits amid soaring utility bills in the country.

Tory MP Charlie Elphicke revealed in the House of Commons that nine water companies, seven of which are foreign-owned, have made operating profits totalling £10bn since 2010 but paid just £54m in tax. That represents a tax rate of just 5.3%, compared to the actual corporation tax of 23%.

Elphicke noted that two of the country's biggest energy firms, which are also foreign-owned, made combined profits of £1.7bn ($2.6bn/€2bn), but they did not pay even a single penny in taxes.

The MP alleged that the firms abused loopholes to dodge more than £1bn in taxes since the election.

He noted that the tax evasion by big firms comes as Britons are suffering from soaring utility bills. Average water bills have increased by 14.5%, electricity bills by 24.8% and gas bills by 33.9%.

Annual utility bills increased by £384 for an average family, according to Elphicke, a tax lawyer.

The MP urged ministers to force water and power firms to cut their bills if they continued to avoid paying the right amount of tax.

"Foreign-owned utility companies, particularly in the water industry, have been engaging in tax schemes using debt interest to avoid tax, which on my calculation over the last three years indicates that the exchequer has lost £1billion," he told parliament.

"They should either be subject to a windfall tax or reduce customers' bills."

Elphicke told MPs that the firms are avoiding taxes through debt interest payments, which are eligible for tax exemption under the law. The firms are borrowing huge sums from their own subsidiaries and sister companies in tax havens to offset tax payments, he said.

Yorkshire Water, a company owned by an international consortium, had generated £990m in operating profits over the last three years, yet it managed to secure a net tax credit of £46.2m, according to Elphicke.

Likewise, foreign water companies such as Southern Water and Anglian Water and energy firms including EDF and Npower have made huge profits, but avoided paying large amounts of taxes, exploiting loopholes, he said.

Elphicke called for avoiding tax relief on interest payments to group companies to stop the abuse.

The revelations come as further headache for Prime Minister David Cameron who has pledged to clamp down on tax avoidance by multinational companies. The country, which is facing deep spending cuts amid the ongoing financial crisis had earlier accused foreign companies including Google, Amazon and Starbucks of using loopholes and tax havens to avoid paying taxes.

During the G8 Summit, Cameron assured support from other leading nations to ensure tax compliance inside the group.

Subsequently, Starbucks that had faced severe criticism from consumer groups and the British government over tax avoidance, paid £5m in corporation tax and promised another £15m by the end of next year.