The Offshore Wrapper - news from the wacky world of Offshore finance
Now that's what I call a Big Tax Case
A long running court case that has become known as the 'Big Tax Case' appears to be reaching a conclusion.
It involves Scottish football club Rangers, who went bust in 2012. After it failed, a new company was created. It bought the assets of Rangers, hired many of same players under TUPE, and continues to hold the trophies won by the previous Rangers. This club, however, claims that the Big Tax Case has nothing to do with them.
For a decade before (let’s call them) Old Rangers went bust, the club had been engaging in a vast amount of offshore tax avoidance in order to pay their players higher salaries, and presumably to attract better players to the club.
We say ‘presumably’, because the current club’s chairman Dave King has released a statement saying that “the football team had no advantage from any tax savings”.
Strange that as a director of Old Rangers, the same Dave King, had previously said that “we probably gained some competitive advantage. I believe that we should apologise for that.”
Mind you, new/old Dave King was also called a ‘glib and shameless liar’ by a South African judge, in a case that ultimately saw King accept 41 counts of tax crime, and for each of them the maximum sentence: 24 months or 80,000 rand fine. [King paid the 3.28 million rand, rather than do the 82 years in prison.]
Anyway, the Rangers scheme involved sending payments to players via an offshore trust. (Not unlike the vehicle that King has apparently used to channel his financial interests in the new football entity.) The purpose of the Rangers Employee Benefits Trust was to give the impression to tax authorities that the club wasn't paying the players and so not create an income tax liability.
The whole saga isn’t lacking in colourful characters. The most colourful is probably Paul Baxendale-Walker – the man who Rangers chose to advise them on their tax avoidance schemes.
Baxendale-Walker would later leave the tax profession to become a self-publishing pornographer. He went onto buy lads mag 'Loaded' where he published articles about his wild lifestyle with his 'honey bunnies'.
Another character, Andrew Thornhill QC is a barrister who has defended Rangers' tax avoidance scheme in court. He is currently facing the potential of disciplinary action for misconduct over allegations he used charity money to invest in his own tax avoidance scheme.
With advisers like that it might be unsurprising news to many that Rangers lost their Big Tax Case in Scotland's Court of Session recently. Technically Old Rangers still have the option to appeal the case to the Supreme Court. How likely that is, given they are bankrupt, is an open question.
But on a serious note the judgement is big news. If it goes unchallenged it will effectively kill a lot of tax avoidance schemes that rely on diverting funds to offshore trusts. That is because the court has found that if you agree to have your money put into a trust, then that is no different from receiving your money yourself. Whatever convoluted tax avoidance structure you have created offshore doesn’t matter. (The same fact, of course, means that many people have an interest in a successful challenge…)
More on this story here.
Stars and stripping
So how much tax do US multinationals avoid?
Every year the United States Bureau of Economic Analysis surveys all big businesses in the United States on their operations. Their findings are available on an aggregate level for countries but not individual firms.
The Tax Justice Network's director of research Alex Cobham and Petr Jansky of Charles University, Prague, have used this data to get a handle on profit shifting by US headquartered multi-nationals. They looked at what profits companies were reporting and where, and compared the data to how much economic activity was going on in that country.
The findings are staggering. In a single year US multinationals shifted around 25% of their profits, between $500-700bn, often to low tax jurisdictions. The full report can be seen here:
Dead bad PR
The Sarawak Report has been faithfully uncovering an enormous scandal involving Malaysia’s 1MDB, the national development corporation for some time..
The scandal involves allegations that hundreds of millions of dollars were funnelled into the pocket of the prime minister. Now, when you uncover a massive story like that there are bound to be plenty of people out to get you. A story last week shows just how deep some hired guns in the PR industry are prepared to go to smear investigative journalists.
The Sarawak Report has detailed how social media accounts that have attacked its integrity were created by hired guns in the PR industry been part of an organised campaign to discredit them. This became apparent because whoever is behind the accounts appears to have stolen the online identities of dead people to propagate their smears.
According to the Sarawak Report the PR campaign was commissioned in London by a Swiss PR firm.
Sexwale Healing for FIFA?
It's the election of the century – so far. The race to take over the presidency of Fifa from scandal-hit Sepp Blatter has begun in earnest. Prospective candidates were recently vetted by an Ad-Hoc Ethics Committee before they could be allowed onto the official list of candidates. Names were revealed last week.
Only one candidate was prevented from going forward to the official list – Liberia's Musa Bility. He can appeal the decision, however for now it looks like his bid to become FIFA President is over.
South Africa's Tokyo Sexwale was a clear winner. The African Football Federations are an influential block in FIFA, and with Musa out of the way this leaves the field clear for him to build his presidential campaign.
Tokyo must now be seen as one of the favourites. He is being touted as the man who can clean up Fifa. The only candidate from outside Fifa (although he was involved in the South African World Cup bid), a successful businessman, a campaigner against apartheid who fought alongside Nelson Mandela and was imprisoned at Robin Island. He is now one of the richest men in South Africa, a charismatic and successful businessman, and a host on South Africa's version of The Apprentice.
It all sounds an attractive proposition.
Fifa's ethics committee claims it did a thorough due diligence job, scouring public records, court records, corporate records and the media for any 'red flags' that led to a whiff of corruption from the candidates. Anything they found was put to the candidates.
It would be interesting to know if the Ethics Committee asked Tokyo Sexwale about a story published by the team of South African investigative journalists at amaBhungane. The full article is here.
The main issue involves Sexwale's involvement in the mining industry. Mining is a sector that is notorious for corruption because of the industry's reliance on gaining government licences in order to operate.
Sexwale chooses to structure his business using a highly secretive offshore companies based in tax havens. One of his firms is Africa Management Limited. It is based in Guernsey which is connected to companies in notorious tax havens such as the British Virgin Islands.
Africa Management Limited is currently 'caught up' in a corruption investigation.
It involves one of the most controversial mining deals of the past decade. Africa Management Limited lent $120m to Israeli tycoon, Dan Gertler. The money reportedly helped finance the acquisition of the Kolwezi copper and cobalt mine in the Democratic Republic of Congo after it had been stripped from a Canadian company, First Quantum by the government of the DRC. A few months later, Gertler sold the mine at a huge profit. Dan Gertler is reportedly very close to the Congolese President.
Sexwale's joint venture partner in Africa Management Limited, Och-Ziff Capital, disclosed last year that it is under investigation by the US Department of Justice (yes, that is the same outfit who are investigating corruption at FIFA) over allegations of corruption on DRC mining deal.
It must be said that Tokyo's spokesperson has stressed he is squeaky clean and that all allegations are unproven. But do they meet Fifa's "red flag" test? Seemingly not.
A version of the story originally appeared on the Offshore Game website here.
Everyone is doing it, why can't we?
So what do you do if you are a small businessman competing with Amazon? A company that can undercut your prices because they are engaging in a vast international tax avoidance scheme. There must surely only be one answer. Join them.
A new BBC documentary is following the trials and tribulations of a small Welsh town as they try to move their business offshore. The film makers have followed the small traders as they go to the Isle of Man and the Netherlands, seeking to learn from the greats in how they can save on their tax and compete with the big boys.
The film, which will come our next year, and appears to be more of a comedy than a serious attempt to get more people involved in tax abuse, but raises an important issue. It is certain to be essential viewing.
Photo credit - Ibrox, from Gordon Miligan via Flickr using the Creative Commons Licence