Tesco has denied allegations that is has created an elaborate corporate structure involving offshore tax havens that enables it to avoid paying tax of up to £1 billion on profits from the sale of its UK properties, according to the Guardian newspaper.

In a six-month investigation, the paper claims it has uncovered a string of Cayman Island companies, each named after a different colour from aqua to violet. These, it is alleged, are being used by Tesco as it proceeds with its announced programme to sell and lease back£6 billion worth of its UK stores.

The stores are being sold to external investors, providing Tesco with a big one-off gain which, ordinarily, would be liable to tax, while allowing it to remain in the stores and pay rent to the new owners.

The first two deals, worth£445 million and£650 million, have used the companies set up in the Cayman Islands – where there is no corporation tax – allowing Tesco to avoid tax on profit of about£500 million.

A Tesco spokesman said the allegations were wrong. He said: “Far from avoiding tax, Tesco is a top 10 UK taxpayer, contributing more than£1 billion to the Exchequer last year. The profits from Tesco’s share in these offshore property partnerships are included in full in Tesco’s UK tax returns and the details of the agreements have been provided to Her Majesty’s Revenue and Customs department.”