Russian billionaire, wanted in US, may have saved millions in tax through IOM structure
15th August 2020, London – The global super-rich have avoided paying up to £1 billion in VAT on the purchase of private jets by using advantages including financial secrecy in the Isle of Man and other jurisdictions closely linked to the UK, according to analysis published today by Global Witness.
Using a new cache of hacked banking documents which build on the 2017 Paradise Papers, Global Witness shows how jet owners are able to set up shell companies which look like VAT-exempt aircraft leasing businesses. Oleg Tinkov, a Russian billionaire, used one such company to jet around the world on private trips, apparently without paying a penny of VAT.
Tinkov is currently on bail in London and facing extradition to the US on tax fraud charges. Using the new documents, obtained by a ‘hacktivist’ from the Isle of Man branch of Cayman National Bank and published online, Global Witness provides unprecedented insight into the opaque corporate structures that Tinkov – an entrepreneur and former professional cycling mogul – used to register at least three luxury jets, and through which he could have saved millions of pounds in tax.
The documents also reveal how details of Tinkov’s accounts and loan agreements for planes were requested by the US Department of Justice in 2018, at a time when the agency was investigating the tax fraud allegations which led to the current indictment. Tinkov did not respond to a request for his response to the suggestion he had avoided tax, nor did he comment in any way, while Cayman National said that it no longer takes on Russian clients. There is no evidence to suggest that in setting up and using these structures an illegal act was committed.
Ava Lee, Campaign Leader at Global Witness, said:
“This is a case that once again shines a light on the financial secrecy offered by the British Overseas Territories and Crown Dependencies that is so often used to make the super-rich even richer.
“The recent release of the Security and Intelligence Committee’s Russia Report called for an end to Britain’s role helping Russian money move around the world. If the UK really wants to remove the red carpet offered to Russia’s oligarchs, it should look to its territories, like the Isle of Man, where financial secrecy has made tax avoidance possible.
“When vast sums of potential tax money aren’t paid, ordinary citizens are the ones who lose out. Never in recent history has the need for strong public services and healthcare been so pressing – private jets will not help in the fight against COVID-19.”
As well as the Isle of Man, companies registered in the British Virgin Islands are central to the corporate structures used by Tinkov and other wealthy individuals. Global Witness is calling for public registers revealing the true owners of companies based in all of the UK’s Overseas Territories and Crown Dependencies, to remove the financial secrecy that allows tax avoidance schemes to thrive.
On the issue of aircraft VAT specifically, the UK Treasury needs to make sure that Isle of Man Customs & Excise is performing proper post-registration checks on the use of jets, so that the island can no longer be seen as a soft touch for the super-rich seeking to avoid paying their fair share of taxes.
The Isle of Man government said that the island’s VAT law mirrors law in the rest of the EU and that the government “meet[s] all of our international obligations in preventing tax evasion and will not tolerate anyone that seeks to avoid paying tax.” It also said that it had implemented a new training programme for customs staff to ensure that post-registration assurance on aircraft VAT registrations is carried out effectively.
Global Witness shared a copy of the investigation prior to publication with Anneliese Dodds, the Shadow Chancellor, who responded:
“It’s long been clear that secrecy and artificial complexity allow aggressive tax avoidance and other kinds of financial malpractice to thrive. Greater transparency would make it much easier to distinguish legitimate business activity from immoral or illegal practices… Global Witness’s report shows that we need that transparency as soon as possible.”
Notes to editor:
- “Up to £1 billion” in VAT refers to the number of full VAT refunds on aircraft imports granted by Isle of Man Customs & Excise between October 2011 and December 2019, totalling £992 million.
- Tinkov’s leasing structure involved an IOM company buying a plane with a loan from a BVI company, both understood to be ultimately owned by Tinkov. The BVI company then leased the plane, making rental payments while receiving loan repayments of equivalent value from the IOM company. As a leasing business, the IOM company could claim to be exempt from paying VAT when importing the jet.
- While the VAT exemption for business use in the Isle of Man also applies in the UK and other EU countries, the Isle of Man offers an offset procedure through which companies do not have to pay tax up-front, providing a cash-flow advantage. The IOM customs agency is also considered ‘user-friendly’ by corporate service providers.
Header photo credit: James Stringer via Flickr
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