07 Nov 2017
By Juliette Garside , Ryan Chittum, ICIJ
Formula One auto racing star Lewis Hamilton got a new luxury jet, a $27 million candy-apple-red Bombardier Challenger 605 with Armani curtains. He also got a refund on the value-added tax.
And the lawyers at Appleby, an elite law firm founded in Bermuda, were there to help.
They teamed with the London-based accounting giant Ernst & Young to craft an arcane plan to sidestep the VAT, a consumption tax charged in Europe on everything from socks to cars.
One of the conditions: Hamilton’s inaugural flight would have to touch down on the Isle of Man, the British crown dependency in the Irish Sea known for its lenient tax treatment of the world’s super-rich.
“This will involve a short stay, normally less than 2 hours,” Appleby said in a written explanation of the tax-avoidance strategy.
The four-time Formula One world champion was up to the challenge. He and his girlfriend, Pussycat Dolls pop star Nicole Scherzinger, planned to make a layover on the Isle of Man on their first time out to Europe on his new jet in January 2013, according to an itinerary sent to Appleby.
Whether Hamilton actually made the trip could not be learned.
But in the end, he did pick up a $5.2 million VAT refund, according to secret documents reviewed by the International Consortium of Investigative Journalists, the BBC, The Guardian, and more than 90 other media partners.
The documents come from the internal files of offshore law firm Appleby and corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016.
The exemption that Appleby helped secure for Formula One champ Hamilton’s jet, for instance, shows how expansively the Isle of Man interprets EU aircraft rules.
Appleby began with a pitch to Hamilton and his representatives: “By working with Ernst & Young LLC as a VAT specialist and through the use of their dedicated VAT Deferment Account together with appropriate structuring, the need to fund the VAT would not be required.”
Officials from Ernst & Young and Appleby, and other advisers, exchanged emails and held conference calls to puzzle over how to deal with EU rules, which allow VAT refunds for private planes only when they’re used for business purposes by real companies that operate in the EU.
Appleby set up an Isle of Man company called Stealth (IOM) Ltd. to lease the jet from Hamilton’s British Virgin Islands holding company, Stealth Aviation Ltd., and import the plane to the Isle of Man and, thus, thanks to the island’s relationship with the U.K., into the EU.
The letterbox company then subleased the plane to TAG Aviation Ltd., a third-party jet operator in England.
But EU rules require that the company that imports the plane be a real – not a shell – company that actually operates in the EU.
Only “fixed establishments” are eligible, and a fixed establishment is defined as having a “sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to provide the services which it supplies,” according to EU rules.
Stealth (IOM) Ltd. has no employees. Knock on the door at 33-37 Athol St. in Douglas, the capital, and you’ll find an Appleby office that also serves as headquarters for more than 1,100 companies and trusts. Stealth (IOM) has no staff and no building of its own.
It has a “brass-plate” address and a single director, General Controllers Ltd. – another Appleby shell company used as a “nominee director,” a stand-in for the controlling parties.
Although the importing firm clearly exists only on paper, Isle of Man officials pre-approved Hamilton’s arrangement.
After that, all that was required was a layover on the Isle of Man for customs to sign the jet’s paperwork allowing the VAT refund. Neither Hamilton nor his plane ever had to visit the island again, even though the firm that imported it is incorporated there.
Appleby sold its Isle of Man jet operation and the rest of its fiduciary business to the unit’s managers in early 2016; the new company took the name Estera.
Contributors to this story also included: Tim Robinson and Mike McIntire.
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