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Tax Rules for the Super-Rich Make the Isle of Man a Haven for Private Jets – OCCRP

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‘Pro Business’

Jets registered on the Isle of Man can travel throughout the EU without being subject to customs checks, an attractive perk for the owners of over 1,000 jets registered on the tiny island since it created its private aircraft register in 2007.

“It’s simply not fair that some individuals and companies can get away with not paying the correct amount of VAT on products like yachts and aircraft,” said Pierre Moscovici, a former European Commissioner for Economic and Financial Affairs, Taxation and Customs. “Favorable tax treatment for private boats and aircraft is clearly at odds with our commonly agreed tax rules,” he added.

An internal presentation given at the 2011 Isle of Man Aviation Conference by a senior Ernst & Young VAT consultant set out the key features of the island’s tax regime, which it labelled “user friendly” and “pro business.” The two examples the consultant gave describe scenarios in which Isle of Man-registered companies are established in order to purchase a jet which is then used for business purposes by a parent company — a similar scheme to the one used by Tinkov.

Ernst & Young said it would not comment on individual client matters as a matter of policy, but that neither Tinkov nor Stark Limited had been a client of the firm for several years. The accounting firm added: “All our tax advice, whether in relation to planning or compliance, is based on our knowledge of tax law and practice at the time and providing transparency to tax authorities.”

Documents from Cayman National show that Tinkov wasn’t the bank’s only client to take advantage of the island’s financial services industry in this way. Twelve of the bank’s other clients were also jet owners, and the evidence suggests that they used similar corporate structures to reduce or even eliminate VAT bills, making such schemes a common practice.

Like all tax havens, the Isle of Man’s economy is intimately bound up with the interests of the financial and corporate services sector. Regulatory authorities in tax havens often present themselves as permissive and “pro-business,” tailoring themselves to the needs of the financial services sector’s wealthy clients while retaining close links with the key firms operating in their jurisdictions.

Open source research conducted by Global Witness analyzed a number of case studies, including that of Brian Johnson, the Isle of Man’s director of Civil Aviation between 2006 and 2011. Johnson’s most notable achievement was the founding of the island’s jet register. Following his stint in government, he joined Appleby as a director, enabling the firm to give both legal and technical advice to jet-owning clients, particularly in the Isle of Man.

Johnson did not respond to questions from reporters.

There are other examples of a cozy relationship between regulators and the financial services sector in the Isle of Man. For example, the most senior official responsible for VAT on the Isle of Man is the head of Customs and Excise Division, the island’s customs agency. Revenue collected by the agency makes up almost half of the island’s total income each year, so it’s no surprise that, when an advertisement for the role was posted in 2018, experience in the field of indirect tax was listed as a desirable quality.

The winning candidate had experience on both sides of the fence. Sandra Skuszka joined IOMCE with experience in previous roles as head of VAT at KPMG Isle of Man and head of indirect tax at KPMG Islands Group, a network of branches covering some of the world’s most infamous tax havens and secrecy jurisdictions, including the Cayman Islands and the British Virgin Islands. It would be Skuszka’s second stint at the IOMCE, where she trained before joining KPMG in 2007.

Luckily for KPMG, the accounting firm had another IOMCE alumnus, Paul Cawley, on hand to fill Skuszka’s vacated role. And Skuszka hasn’t hesitated to keep in contact with her former colleagues. A photograph from 2019 shows her at the 50th birthday party of Micky Swindale, CEO of KPMG Islands Group and former chair of the island’s chamber of commerce.

As well as providing key staff to the Isle of Man government, KPMG also has an official role as the government’s independent auditor. The company even has an ex-employee in the Tynwald, the island’s parliament: House of Keys speaker Juan Watterson, who worked as an accountant for the firm before being elected.

KPMG confirmed their role as auditor for the Isle of Man government accounts “for a number of years,” and details about the employees mentioned, but declined to comment more generally on the importation of jets.

While there is no suggestion that any official or company employee has acted improperly, deep connections between the financial industry and regulators can weaken the ability of official bodies to hold the private sector to account. Even the UK Treasury, in its otherwise light-touch review of Isle of Man VAT practices, sounded a note of caution:

“Many advisors claimed that they were able to access an expedited service from IOMCE and had strong working relationships with Isle of Man staff,” Treasury officials wrote. “While this is likely to be marketing activity and not amount to a material risk, IOMCE should be aware of these claims and adjust its compliance activity if necessary.”

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