PAY-TELEVISION broadcaster Setanta Sports has slashed at least £17m from its tax bill by setting up a subsidiary in Luxembourg. The windfall will boost the firm’s valuation as speculation increases that a sale of the company is likely.

Over 1m British and Irish subscribers pay into Setanta’s new Luxembourg subsidiary called Setanta Sports Sarl.

Setanta pays “super reduced” Vat of only 3% on subscriptions routed through the grand duchy against 17.5% charged in the UK and 21% in Ireland.

Setanta has also set up subsidiaries to support its entry into the Canadian and Australian markets this year. Its ultimate parent company remains in Ireland, where more than half of its 450 staff are employed.

JP Morgan, which advised Setanta on its bid to screen Premiership matches, placed a value of up to £1 billion on the company in 2006 despite the broadcaster’s losses. Setanta has since won further sports broadcast rights, pushing its valuation even higher.

ESPN, the American sports giant, indicated earlier this month it would be “absolutely interested” in bidding for English Premiership football rights when they next become available in 2009. This was seen as a signal to the market that it could be lining up a bid for Setanta. A bid would also see ESPN acquire the British and Irish rights for PGA golf, which Setanta acquired for €150m (£110m).

Setanta said: “Many of the main broadcasters are based in Luxembourg as it offers an attractive fiscal incentive. We established this European base for the company as it becomes more international and expands into mainland Europe.”

Setanta has a total subscriber base of more than 3m, when its partnerships with Virgin Media in the UK and Chorus/NTL in Ireland are included.

Only its 1m direct subscribers are affected by the Luxembourg subsidiary. Assuming all 1m subscribers pay the £9.99 a month minimum subscription rate this equates to revenue of almost £120m.

A British Vat rate of 17.5% on this amount is roughly £21m. However, a 3% “special” Luxembourg Vat rate on the same sum adds up to only £3.6m, indicating Setanta is making a minimum saving of £17.4m from the move to Luxembourg.

But with many subscribers paying out more than £9.99 a month for the full range of services, the savings to Setanta by moving its business could run to more than £20m.

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