Gordon's Republic

Gordon Macmillan

The Guardian has claimed Tesco has taken moves to avoid paying taxes by setting up offshore accounts in the Cayman Islands. In a High Court writ the retailer is seeking special damages for "libel and malicious falsehood", citing complaints from customers.

If Tesco wins it could be a very expensive cheque that McCall, who was appointed a non-executive director of Tesco in March 2005, will have to write.

The question is how much longer can she sit on the Tesco board, which let’s face it must be a nice gig, with the possible burden of having to go to Tesco’s HQ in Cheshunt once in a while.

Lucy Neville-Rolfe, Tesco's executive director of corporate and legal affairs, said at the weekend that the retailer regretted the move, having failed to get the paper to back down - as it did when the Guardian had a first crack at this story last year, so the story goes.

The Tesco story has apparently caused ructions between McCall and Guardian editor Alan Rusbridger. The two have famously been close and by all accounts get on very well, which is the ideal relationship between chief executive and editor.

However, the two have been having words this time after the Guardian's first effort did not make it into print. The paper, however, continued to work on the story and eventually broke it in February, which has landed the paper with a legal tangle.

When it broke it sounded like a great story based on a long investigation, but if it unravels the price will be high. Still, the Guardian shows no sign of backing down and has accused Tesco of bullying and trying to stifle public debate.

In a statement the paper said: "This looks like a deliberate tactic by Britain's largest retailer to shut down perfectly legitimate inquiries into their methods of tax avoidance."

In a stock exchange announcement, Tesco said that it was not uncommon to use offshore companies for joint ventures with third parties.

Furthermore it pointed to other examples and claimed that the Guardian Media Group used a similar structure when it acquired Emap in partnership with private equity company Apax.

For the time being at least it appears that McCall is staying put at Tesco.

UPDATE: It's been a busy week for McCall one day you're drinking bubbly and being named winner of the 2008 Veuve Clicquot Business Woman Award and next you're resigning from the board of Britain's biggest retailer. Mixed fortunes indeed.

The battle lines are set and McCall clearly had no choice but to go. It is the Guardian that reports this morning that it is "understood" she resigned on Monday.

With McCall going it looks like no one is preparing to back down any time soon.

Tesco said earlier this week that it plans to use letters and emails from customers as evidence as it seeks damages".

The Daily Telegraph reported that within hours of The Guardian publishing its allegations, Tesco claims that it was contacted by customers.

One wrote: "Please find enclosed receipts for the drinks, etc for a cocktail party I am organising. I would have bought everything at Tesco, my nearest large supermarket, until I read of your policy of using the Cayman Islands to avoid paying tax in the UK. Instead I drove an extra half mile to Sainsbury's and bought everything there. My family will not shop at Tesco in future, which is no hardship as there are plenty of supermarkets in the... area. I am sure many others will feel the same way."

Another wrote: "Although we have shopped in Tesco Mold since its opening day we will no longer do so because of the company's tax evasion. None of our money will be going into offshore accounts. We hope to persuade our friends to follow our example."

Tesco said that attempts to reassure the former customer that the allegations were untrue were unsuccessful. The customer replied by sending Tesco a Guardian editorial printed the day after the original articles. "Below I have printed extracts from The Guardian. Do you have any appropriate counter-argument?" he wrote.

If they do I guess we'll see it soon enough.