Joel Muckett 7 Nov 2017 02:44pm

Lewis Hamilton avoided tax on private jet buy

EY involved in scheme to help Formula One world champion Lewis Hamilton avoid paying taxes on the purchase of his private jet

Appleby, the law firm at the heart of the Paradise Papers leak, and Big Four firm EY were found to have assisted the Mercedes driver in avoiding paying VAT on his new jet.

Documents obtained by the International Consortium of Investigative Journalists show Hamilton purchased a Bombardier Challenger 605 in January 2013 for $27m (£20.57), but took a $5.2m (£3.96) refund on VAT in the process.

Working together, Appleby and EY devised a plan that involved creating a VAT registered leasing business based in the Isle of Man that would offset importation VAT and use of a VAT deferment scheme with “appropriate structuring”.

A key part of the scheme involved the newly purchased jet having a layover in the Isle of Man, where an EU Import Licence (C88A) – enabling the jet to freely travel within the EU – would be issued.

“The aircraft would need to physically visit the Isle of Man, arriving from outside the EU, to be imported. This will involve a short stay, normally less than two hours,” a written explanation of the scheme said.

After corresponding with each other, Appleby and EY were able to find a method to deal with EU rules, which only allowed for VAT refunds for private planes when real companies based in the EU used them for business purposes.

The law firm set up Stealth (IOM), and leased the jet from Stealth Aviation, a holdings company based in the British Virgin Islands owned by Hamilton.

From there, the jet was then subleased to a third-party jet operator in England for a higher price, in turn, making a profit for Stealth (IOM) and allowing the company to be considered a “fixed establishment” in accordance to European Union rules.

As a result, the plan of the jet having a layover in the Isle of Man to receive its C88A was able to proceed.

EY declined to comment on the basis of not discussing individual client matters.

“All our advice, whether in planning or compliance, is based on our knowledge of tax law and providing transparency to tax authorities. EY does not offer mass market tax planning schemes,” an EY spokesperson said.

“Our services are underpinned by a firm-wide global code of conduct. In the UK and the Isle of Man EY is regulated by the ICAEW.”

International tax lawyer Miles Dean said that Hamilton himself did not avoid tax, and instead, set up a corporate structure for the purpose of purchasing the plane and operating it as a commercial venture.
“If properly implemented, the arrangements would amount to conducting a trade and would therefore be entitled to a refund from the Isle of Man’s tax authorities, under the relevant rules,” said Dean.

“VAT would have been paid if the plane was flying in EU airspace, but the VAT rules are clear: if the owner and importer of the plane is a business then VAT paid on import into the EU is refundable.”

Dean questioned why the structure was put in place if there was little possibility of it being operated in a manner to reclaim VAT legitimately, but said Hamilton’s personal use of the plane placed arrangements in “jeopardy”, as HMRC could be expected to scrutinise arrangements.

Since its release on Sunday, the Paradise Papers have exposed the use of offshore tax havens by some of the world’s biggest businesses, political figures and celebrities.

Millions of pounds from the Queen’s estate were found to be invested through the Duchy of Lancaster into an undisclosed offshore portfolio in the Cayman Islands.

Additionally, Lord Michael Ashcroft, a major donor to the Conservative Party, was linked to a trust in Bermuda with assets with £341m.

US commerce secretary Wilbur Ross was also implicated in the leaks, and faced questions over undisclosed investments in a shipping firm with links to Vladimir Putin’s son-in-law and a Russian oligarch who was currently under sanctions.

In a statement yesterday, Appleby insisted there was no “wrongdoing” on its part, and claimed they were targeted by an “illegal computer act” rather than a leak.