Tesco was forced to defend itself on two fronts yesterday as it was accused of setting up an elaborate offshore tax avoidance scheme not long after one of Wall Street’s biggest brokerages had said that the supermarket’s nascent business in the United States “is not working”.

Last night, it was claimed that Tesco could avoid paying as much as £1 billion of tax on profits from the sale and leaseback of its UK properties to external investors through the use of a number of companies in the Caymen Islands.

Two deals, worth £445 million and £650 million, have been put through the companies set up in the Cayman Islands, which are named after colours such as aqua or violet, according to a Guardian investigation.

The deals, which enable Tesco to remain as tenant in the store, are said to have allowed Britain’s biggest retailer so far to avoid tax on about £500 million of profit, as the rate of corporation tax is zero in the Caymen Islands.

A Tesco spokesman said that the allegations were “wrong . . . Far from avoiding tax, Tesco is a top ten 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 Majestys Revenue & Customs department.”

Across the Atlantic, Tesco was under fire last night as Piper Jaffray, the American broker, told its clients that it believed that Tesco “must be concerned that the Fresh & Easy concept is not right” amid weak customer numbers.

Tesco sought to break into the fiercely competitive US market four months ago with its Fresh & Easy convenience store chain. The stores resemble British Tesco Express outlets.

The supermarket group is aiming to compete with Wal-Mart, the world’s biggest retailer and the dominant foodseller in the US, by sourcing ready-made meals from British suppliers who have relocated to America.

Yesterday Mike Dennis, a retail analyst for Piper Jaffray, said that Tesco’s entire business concept in the US was not as “robust as thought” and he raised doubts that the group’s “Every Day Low Price” products were not priced low enough to attract Americans, who are suffering from rising fuel and energy costs and the worst housing slump for 21 years.

Yesterday a spokesman for Tesco in the UK said that Mr Dennis’s claims were “a bit ridiculous, given that we only opened four months ago”.

He hit back at the broking firm’s estimates that it would cost Tesco about $400 million to pull out of the US, insisting that “we are not even considering pulling out”.

The US broking house claimed that Tesco’s Fresh & Easy stores were suffering far lower-than-expected sales.

Tesco opened its first Fresh & Easy store in America in Los Angeles last November. It aims to build 1,000 stores in the US eventually.

British retailers have found the US consumer notoriously difficult. Marks & Spencer, Next, Dixons, and Sainsbury’s have all tried to expand in the US in the past few years and failed.

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