The revelations earlier this week about Formula One's tax rate got a lot of people talking. The original report was on the cover of the Independent newspaper and was written by Pitpass' business editor Christian Sylt. It revealed that in 2011 F1 paid a net total of £945,663 in UK corporation tax on pre-tax profits of £305.6m.

It attracted a great deal of follow-up media coverage which all duly noted that F1's tax arrangements are entirely legal and legitimate as Sylt stressed in his article. However, some of the reports drew rather outlandish conclusions from this which is perhaps hardly surprising given that it is a frightfully complex subject. In fact, on delving into it deeper we even learnt a thing or two more.

Before we get into that, a layman's summary of the situation is in order. The key mechanism F1 uses to reduce its tax bill is a system of intra-group loans. The companies which generate most of F1's profits are based in the UK but they have been lent money by sister companies based offshore in Jersey. The interest paid on the loans by the UK companies outweighs their profit and pushes them into loss. This means that they pay little corporation tax since it is charged on a company's profit.

Money is moved out of the UK companies through the interest payments and this lands in the coffers of the Jersey F1 companies which provided the loans. This money is not taxed in Jersey because of its zero tax rate so it can be paid out there as a dividend with no tax deducted. Any of F1's investors who are based offshore can receive the dividend with no tax lost in the entire process.

You might expect that such an ingenious system designed to maximise profit must have been devised by F1's master-strategist Bernie Ecclestone. However, on investigating this further Pitpass discovered that in fact the tax system was chosen and put in place by F1's accountants and those of its controlling shareholder the private equity firm CVC.

"Ecclestone runs the company but he doesn't organise the tax code. He couldn't change it even if he wanted to," said one source in the City.

As regular readers will be well aware, CVC bought F1 in 2006 from the Ecclestone family trust and three banks – JP Morgan, Lehman Brothers and German lender BayernLB. The acquisition was financed with two loans - one of £633m ($1.1bn) from the Royal Bank of Scotland (RBS) and another of around £555m ($965.6m) from CVC's investment Fund IV. With F1's offshore parent company saddled with external debt from the start it was not a major leap to put in place a system of internal loans to minimise its tax bill. CVC didn't devise this idea – it was already a well-established concept which brings us to one of the more wild blunders made in the recent coverage.

Some of the reports suggested that the revelation about F1's low tax bill could see the company hauled in front of a parliamentary select committee as happened late last year with Amazon, Google and Starbucks. Anyone who thinks that the same could be in store for F1 clearly hasn't read the original article carefully enough and hasn't looked into the background behind it.