A report by the Committee accuses the departments of maladministration after 200 properties were transferred to an offshore company as part of the 600-property deal and without the knowledge of Parliament.

After an open tender Mapeley, a consortium comprising of Fortress Registered Investment Trust, Soros Real Estate Investors and Delancy Estates, was chosen as the preferred bidder in August 2000 and contracts were exchanged in March 2001. As part of the deal, worth £2 billion ($3.2 billion) over 20 years, Mapeley took over ownership and responsibility for the properties. In return the departments received an up front cash payment of £220 million ($356.6 million) and a further £150 million ($243 million) in the form of discounted services.

Citing evidence from Mapeley the report concludes: "Tax avoidance was clearly one of Mapeley's objectives in the way the deal was structured." The MPs accept Mapeley was entitled to minimise its tax liabilities and that it had acted legally in doing so.

But in a damning paragraph the report adds: "... we consider that the Inland Revenue, responsible for implementing the Government's policy of reducing tax avoidance, should of all departments have been alert to the difficulties of being party to a deal that transferred ownership of its properties to an offshore company. We are concerned that these difficulties were not recognised at the time."

Legal advice to the committee confirmed that existing law prevented the departments from excluding bidders from using an offshore tax structure. But the report recommends that "further advice is sought and published so as to clarify whether it is possible to exclude bidders using an offshore tax haven in similar circumstances, and to restrict final beneficial ownership to companies registered in countries that have signed the agreement on Government Procurement".

The MPs also express their "concern" that "only seven months after the twenty year contract was signed the Departments had been asked to provide a substantial cash settlement to alleviate Mapeley's cash flow problems. This must cast doubts on the robustness of Mapeley's bid and the standard of due diligence work undertaken by the Departments and their advisers before the contracts were signed."