A BBC Panorama investigation into jet leasing schemes channelled through the Isle of Man to avoid tax, has pushed leasing into the public spotlight by highlighting alleged VAT rebate abuses.
HM Treasury will investigate VAT rebates on leased aircraft registered in the Isle of Man as a result of the programme.
VAT rebate covenants may have been breached via personal use of business assets rather than business use, alleges Panorama.
The BBC programme focused on the British tax aspect of 7 million data records from law firm Appleby, and key stories that emerged including the leasing of yachts and planes.
The programme outlined the example of Formula 1 driver Lewis Hamilton who had purchased a £16m jet, with a £3.3m VAT bill that Hamilton avoided via several layers of leasing the asset back to himself.
“The jet is owned by Lewis Hamilton’s company in the Caribbean,” said BBC Panorama journalist Richard Bilton. “It leases the jet to a new company owned by Lewis Hamilton in the Isle of Man – so that’s Lewis Hamilton renting his own jet to himself. It’s then leased to a leasing company he doesn’t own that provides a crew and maintenance. They then lease it back to Mr Hamilton – that’s him renting his own jet back,” said Bilton.
“This is the place [the Isle of Man] to come if you want to dodge tax on your luxury jet,” said Bilton.
“All these different tax havens in the world, they carve out a niche for themselves,” said Brooke Harrington, a research fellow at the Max Planck Institute in Cologne, Germany.
“There’s so many things that they can specialise in: being the jurisdiction of choice to register your jet; being the jurisdiction of choice to register your yacht or your family business. And that’s how they are competing and it makes off-shore very complicated.”
It’s the artificiality of the scheme that should raise suspicions,” said Rita de la Feria, professor of tax law at Durham Law School. “From the moment that you see the artificiality of the scheme you should raise questions about what is the motivation in this particular case. Questions should be raised as to whether this is a proper business for VAT purposes, in which case refunds should not have been granted.”
Hamilton’s lawyers said that he had a “set of professionals in place who run most aspects of his business operations.
“Isle of Man customs… gave informed approval to the scheme,” they told the BBC.
VAT rebates are a key benefit for businesses using leasing products, but the BBC programme alleged that the scheme for Hamilton did not comply with EU and UK tax rules because of the significant personal use of the plane, and that he should not have had a full VAT refund.
Hamilton visited the Isle of Man only once in the jet to sign off on the VAT exemption papers with officials, said Bilton. The BBC alleges the jet was only used two-thirds of the time for business use and one third of the time for personal use, using evidence from social media sites referring to holidays using the jet.
Hamilton’s lawyers added that the practices “were not unlawful and do not constitute… abusive practices.”
The Panorama programme said it had found 50 similar leasing schemes in the documents. It put the questions concerning misuse of commercial leasing VAT rebates by oligarchs and sports starts, to Isle of Man chief minister Howard Quayle, who said on the programme: “We only accept cases for rebates on VAT if it is for 100% business use.”
Isle of Man Customs on the island later told the programme that “as long as it was for predominantly business use, they gave refunds anyway.”
Appleby has imported jets worth £1.25bn through the Isle of Man, which would mean over £790m of VAT rebates are now called into question, said the BBC.
The BBC provided Quayle with evidence of VAT rebate receipts from Isle of Man officials that stated knowledge of ‘private’ use of leased aircraft on official paperwork.
As a result of the BBC Panorama investigation, the Isle of Man chief minister Howard Quayle issued a long response to the press today, where he promised a full investigation into the leasing schemes and possible VAT rebate incursions by calling in HM Treasury to examine the cases.
The UK government declined to be interviewed by the BBC.
Quayle said: “…media attention has centred on the importation of business jets into the EU through the Isle of Man, with a particular focus on the VAT treatment of aircraft leasing arrangements. You will have watched with considerable interest the matters I discussed with you unfolding over the weekend and yesterday and I wanted to provide an update.
“As outlined in the press release issued by the Cabinet Office on 24th October we have invited HM Treasury to conduct an assessment of the practice for the importation of business jets via the Isle of Man into the EU. If there is any evidence of wrongdoing then all appropriate action will be taken against individuals or companies.
“The scoping of the assessment by senior officers has begun and will be published this month, with the work being completed in 2018.
“As I have confirmed, during the course of an internal review, we have found no evidence of wrongdoing, or reason to believe that our Customs and Excise Division has been involved in the mistaken refunding of VAT. The VAT treatment of the importation of aircraft into the EU is a highly technical and complex area in which the Isle of Man follows the same policy, laws and rules as the United Kingdom.
“However, we acted swiftly and decisively and have taken action to demonstrate that the Isle of Man is a well-regulated, open and transparent member of the international community.”