The government's independent auditor has launched a formal investigation into the controversial sale of Inland Revenue buildings to a company based in a tax haven.
By Stefan Armbruster
BBC News Online business reporter
A National Audit Office spokesman confirmed to BBC News Online that the deal was no longer a "watching brief" and the investigation was "formally underway" and due to be completed by the end of the year.
The private finance initiative (PFI) deal attracted widespread criticism after the Revenue erroneously claimed in March 2001 that its 600 buildings had been sold to a British company, Mapeley Limited, for £220m ($344.4m).
The Revenue confessed, 18 months later, that the buildings had actually been sold to a sister company, Mapeley Steps, which is registered in the tax haven of Bermuda.
Under the deal, the government will rent back the buildings for 20 years from another UK-based sister company, Mapeley Steps Contractors, which will service and maintain them for an additional fee.
The structure of the deal allows Mapeley to avoid paying tax on the rent and fees paid by the Revenue.
A Revenue spokesman said they looked forward to working with the NAO.
No tax dodge
In December, the influential Treasury select committee said there were "serious failures" and that it was "astonished and extremely concerned" about the actions of Revenue officials.
The report cleared Mapeley of illegally avoiding tax.
Late last year, the Inland Revenue's chairman Sir Nicholas Montague was forced to apologise for the way the contract was handled and for failing to keep Treasury ministers informed.
The Revenue has also been criticised for sending two letters to the contractor, one of which was to reassure its creditors and shareholders about the viability of the deal.
Sir Nicholas said parliament should have been advised the Revenue was giving the undertakings, which in accounting terms constituted "letters of comfort" and could be considered an expression of financial support.
Earlier this month, Mapeley reportedly demanded £210m in damages from the government, claiming the Revenue supplied incomplete and inaccurate information while negotiating the contract.