Taxpayers will “subsidise” the £7 billion takeover of Morrisons if shareholders vote through the deal tomorrow.
Buyout firm Clayton, Dubilier & Rice (CD&R) is expected to be confirmed as its new owner after waging a four-month bidding war.
However, MPs and campaigners told This is Money that the agreement “stinks” and will likely mean Morrisons paying less tax.
In a letter last week, incoming chairman Sir Terry Leahy said the supermarket would “remain a British business, registered and headquartered in the UK”.
Experts pointed out that the financing of the deal was still a cause for concern.
“No one is suggesting that the owners will be moving the supermarkets to the Cayman Islands,” TaxWatch director George Turner said.
“The issue is that taxable profit in UK businesses can collapse after a takeover by a private equity fund.”
Tax deductions for debt interest, paid to banks and bondholders, are available for all companies in the UK.
Private equity firms borrow billions to fund large acquisitions, which are offset against profits, slashing the corporation tax paid to the Exchequer.
“This deal simply stinks,” Labour MP and tax avoidance campaigner Margaret Hodge said.
“I urge the government to ensure that the taxpayer is not getting ripped off.”
Leahy was the boss of Tesco in the late 2000s, when it admitted using offshore structures to avoid stamp duty.
Morrisons chairman Andrew Higginson said CD&R’s offer “represents excellent value for shareholders” and protects the “fundamental character of Morrisons”.
CD&R declined to comment.