The building is shabby, fronted by a parade of shops including an Indian restaurant serving the usual fare of onion bhajis and chicken tikkas.

Yet this is home to the most profitable companies in Richard Desmond's (pictured) business empire.

Suite 14 of Burlington House in St Helier, Jersey, is the headquarters of three companies - TVX Europe, Portland Enterprises (CI) and RHF Productions - through which Mr Desmond controls his broadcasting venture Television X, The Fantasy Channel and its associated TV porn operations. And the location helps explain why Mr Desmond's parent holding company RCD1, controlled through trusts in Guernsey, last year qualified for a £1.58m tax rebate - although its accounts showed a pre-tax profit of almost £9m.

The RCD1 accounts are explicit in spelling out the advantages of basing money-spinning businesses in tax havens.

Had RCD1 paid corporation tax on its declared profits at the standard UK rate of 30 per cent, it would have incurred a bill of £2.7m. Yet there is a £1.58m tax credit.

Of course, every business tries to minimise its tax bill. And the RCD1 accounts give a detailed explanation of how it managed to avoid any tax charge and end up actually owed money instead.

One of the biggest reasons is that a chunk of profits were "subject to lower level of overseas tax", according to the RCD1 accounts.

This factor alone, says the company, saved more than £2m in 2002. The year before, the saving was £1.4m. And the group "expects certain profits to be subject to lower levels of overseas taxation in future years".

For any company, a saving of £3.4m in a couple of years is useful. For a business with annual profits of less than £10m, it is hugely significant.

However, a Financial Times investigation has raised crucial questions about Mr Desmond's use of Jersey companies to avoid tax on his business empire, stretching from Express Newspapers and the OK! celebrity weekly to pornographic magazines and The Fantasy Channel.

Mr Desmond, 52 next Monday, likes to be best known as publisher of the Express titles. He has told close colleagues he would like to buy the Daily Telegraph and Sunday Telegraph, which could be sold as part of a break-up at Hollinger International, the rival publishing group led by Lord Black.

But the RCD1 accounts for 2002 show that its publishing and printing businesses lost £1.7m last year. The Express is included within that but figures for the newspaper itself are not disclosed because it is run as an "unlimited company" - a type of company that does not have to file accounts in the same way as a Plc.

The publishing loss was balanced out by profits from property and joint ventures - notably the 50 per cent stake held by the Express in West Ferry Printers, Europe's largest broadsheet printing plant. The remaining 50 per cent of West Ferry is held by the Telegraph Group.

Almost all of RCD1's profits - £8.895m out of last year's total of £8.983m - came from TV. And most of that was pornography. It is this operation that is apparently controlled and run by the RCD1 offshoots behind The New Raj restaurant in Burlington House, St Helier.

The Financial Times this week submitted to Mr Desmond a list of questions about his companies' tax affairs. A spokesman for Mr Desmond responded: "RCD1 is a private company, with one shareholder. The auditors are happy, and the company has fully complied with all necessary disclosure.

"We will not be answering this list of questions. Obviously, if the company was listed we would be pleased to answer some of what you ask, but I reiterate the business is entirely private."

There are circumstances in which a UK company can take full advantage of Jersey's low-tax regime. If a Jersey subsidiary of a UK group is running a Jersey business managed and operated on the island, it will pay Jersey's low rates of corporation tax on its profits - typically a maximum of 2 per cent - well below the standard UK rate of 30 per cent.

And there will be no further corporation tax payable to the Inland Revenue when the Jersey company's profits are included in the figures of the British parent.

But the UK authorities' key requirement is that the company must be genuinely run in Jersey to qualify for this generous tax treatment. Where is control exercised? The board of a Jersey company might consist of Jersey residents. But are they acting independently? Or are they simply nodding through decisions made back in mainland Britain?

If the Revenue decides that the Jersey offshoot has been set up simply to try to avoid tax on a business that is really managed and operated in the UK, it will demand the extra corporation tax - the difference between the Jersey rate and the UK rate.

Tax expert Maurice Fitzpatrick, of Numerica, the accountancy group, said: "Where is policy decided? That is the key issue. If policy is rubber-stamped by the Jersey directors after being decided by Richard Desmond in his bath in London, then the company is UK resident for tax. If the economic activity in reality takes place in the UK, which carries out the real business, then profits are subject to tax in the UK."

An analysis of the accounts of the myriad companies that make up Mr Desmond's empire reveals no other large profitable overseas ventures besides the Jersey-based TV businesses. The only exception is Mr Desmond's 50 per cent stake in Dublin-based Independent Star, publisher of the Irish Daily Star. The company showed a pre-tax profit of ?3.4m, on which was levied Irish corporation tax of ?402,000.

So, it appears that the lion's share of last year's £2m-plus benefit for "profits subject to lower level of overseas tax" for RCD1 was derived from profits made on Mr Desmond's broadcasting interests in the Channel Islands. He owns three non-porn channels: Horoscope TV, The Talent Channel, and Bollywood Films. Licences for Horoscope and Talent Channel are held by mainland British companies owned by Mr Desmond. The licence for Bollywood is held by RHF Productions, one of the companies in St Helier.

The remaining channels for which Mr Desmond has licences are all based in Jersey and are all porn - TVX2, TVX3, Erotika, Red Hot All Girl, Red Hot Amateur, Red Hot Euro 40+ Wives, Red Hot Films and Red Hot UK Talent. The licences are held by either RHF Productions, or Portland Enterprises (CI), both in Jersey.

According to accounts of Mr Desmond's companies, the TV businesses were transferred to Jersey in 2000, having been started in Britain in 1995. But to what extent are the TV companies really operating in Jersey? To use a favourite accountant's phrase: Where is the real mind, management and control?

The dingy offices in Burlington House suggest little activity that could account for a broadcasting business with turnover of £34m a year. According to an employee, there are, at most, four people in the offices, including a secretary and a security guard who keeps an eye on things when there is no one about.

Of the remaining two, Peter Farrell is believed to live in Jersey. He was not in the Jersey office yesterday. The other, Gary Suckling, is a London-based Desmond employee: his name appears as a point of contact on accounts of several of the group's London businesses - including Portland Television, the UK company through which the Jersey offshoots are owned. When a reporter visited the St Helier offices, Mr Suckling was in London.

There are clearly no studios in suite 14, no cameras. That is scarcely a surprise: pornography broadcasters rarely film their material on the premises.

But a typical broadcasting operation running eight channels would need "a transmission suite and studio for programme links", a rival TV executive said. "That would require no more than 20 people, although the costs could be up to £4m a year."

A senior colleague of Mr Desmond acknowledged that the Jersey offices are an administrative base. "The companies are run out of Jersey and it has a studio in the [London] Docklands."

In St Helier, there are no visible editing facilities, no teams of people dealing with programming, subscriptions, finances or the other functions one would expect in a sizeable broadcasting company. The only electronics visible are what appear to be a couple of video machines. The offices are virtually bare, except for a few empty magazine racks bearing the OK! logo.

If the Inland Revenue were to deem that control of the TV business is in London, its profits would be liable for tax at the full UK rate of 30 per cent.

Gordon Brown, chancellor, has recently demanded that the Inland Revenue look at the leakage of taxes including corporate taxes through questionable offshore arrangements.

Mike Warburton, a tax expert from Grant Thornton, the accountants, said: "The Revenue is hot and getting hotter on the offshore issue. The chancellor has given extra cash to hire more expert staff to investigate this area."

The Inland Revenue always declines to comment on individual cases. PwC, RCD1's auditors, also said it could not comment on individual clients.

Richard Desmond declined to speak to the Financial Times but the company denies any impropriety. Colleagues say the tax affairs of RCD1 have been cleared by auditors at PwC and fulfil all legal obligations for a privately-held company. According to one insider, "it's all legal and whatever he does is within the law".

Additional reporting by Andrea Felsted and Tim Burt