Four-time Formula One World Champion Lewis Hamilton is one of the richest people in racing, but that doesn’t mean he wont try to cut a deal where he can. Discoveries through the recent “Paradise Papers” leaks reveal Hamilton avoided millions in taxes in the European Union for his private jet.
The Paradise Papers leaks include over 13 million files connected to a company called Appleby, which serviced a wide assortment of wealthy individuals and companies in alleged tax-avoidance schemes. One of these individuals is Lewis Hamilton, revealed to have completely avoided paying taxes on his nearly-$22 million private jet by establishing a shell company in the Isle of Man and renting the plane from himself, according to details outlined by The Guardian.
It’s unclear if whether Hamilton’s shell company scheme was explicitly illegal, but The Guardian reports that the British tax office will be reviewing tax refunds given to private jet owners over the last six years, which reportedly amounts to a total $1 billion in value-added tax (VAT) lost to schemes. In Europe, VAT is calculated to be 20 percent of the purchase price.
Here’s the main chunk of detail concerning Hamilton’s involvement and the legality of the scheme from The Guardian’s extensive reporting:
Hamilton said he had instructed a senior lawyer to check his arrangements and was told they were lawful. He said his practice was to rely on professional advice, and he was not concerned with day-to-day management of his business.
Legitimate tax avoidance schemes are not illegal. There is no suggestion Hamilton was directly involved in creating the scheme used for his jet. He sought professional advice and followed it.
What experts say, however, is that the scheme created appears to be so artificial that it is open to challenge, that it allowed Hamilton to avoid tax that would otherwise have been due, and that the Manx government did not take the proper steps to collect the VAT owed.
Hamilton appears to have used shell companies in the British Virgin Islands (BVI), the Isle of Man and Guernsey to avoid the entire £3.3m VAT bill triggered when he imported his £16.5m red Bombardier aircraft into England from Canada in 2013. Hamilton set up another Isle of Man company to purchase a €1.7m motorhome that he uses at racetracks. No VAT appears to have been paid on that purchase either. Hamilton denies using shell companies, and says the Manx entities were part of his businesses.
Manx is a reference to the Isle of Man government, which the leaked documents seem to indicate failed to properly vet reclaimed VAT requests from companies established in its jurisdiction on multiple accounts.
The key issues with Hamilton’s scheme were outlined by The Guardian:
- He appears to have received a 100% import VAT refund when experts say he should have paid tax in proportion to the amount of private use he intended to make.
- He should have declared and paid VAT to any European governments whose airports he used for leisure flights.
- The leasing business set up for his jet appears to be a letterbox company with no real economic purpose, and likely should not have been entitled to reclaim VAT from the Isle of Man.
It’s estimated that Hamilton should owe approximately one-third of the over-$4 million VAT he reclaimed due to his private use, and the value of avoided VAT fees towards the various European governments and other services is unclear. More from The Guardian:
Lawyers for Hamilton said his advisers had made all necessary disclosures to customs and he had never hidden his private use of the jet. They say it was predominantly used for business and the leases reflected the commercial use to which he put the aircraft. They claim there were no tax advantages to using the Isle of Man as opposed to the UK or another EU member state for the import.
Additionally, Hamilton used a similar scheme to reclaim VAT on an imported motor-home valued at over $2 million, which he’s used during his racing seasons at various tracks.
It’s unclear, exactly, what the revelations could result in, if anything. Again, the specific structure of the companies Hamilton owned or operated through is not explicitly illegal, but his private use of the plane without appropriate taxation may be an issue, and he may owe once the British tax office completes its review.
In the meantime, go over and read The Guardian’s full breakdown of specific conversations Hamilton’s team were having, and the specific structure of the scheme. It’s a fascinating read for poor people like me.