The Isle of Man government approved tax avoidance schemes that have refunded more than $1bn to the super-rich and to multinationals on the import of hundreds of private jets into Europe.

The Paradise Papers reveal how Manx customs worked closely with the offshore law firm Appleby and the big four accounting firm EY, to approve schemes which have ultimately helped some of the world’s wealthiest individuals reduce import VAT bills to zero.

The arrangements allowed jet owners to claim 100% VAT refunds on the grounds that their jets were part of leasing businesses. What the leak of 6.8m files from the archives of Appleby reveal is that these businesses involved millionaires leasing their own aircraft from themselves.



Experts who have reviewed the the structures allege they are open to challenge as an abuse of tax law, which is punishable by a fine. In some cases the experts allege there could be challenges for tax evasion, which is a crime.

There is nothing unlawful about legitimate tax avoidance schemes. Appleby and EY say they have both ensured they followed legitimate commercial practice.

Appleby helped clients, including the Formula One world champion, Lewis Hamilton, and oligarchs from Vladimir Putin’s inner circle, receive about $300m in VAT refunds, the data indicates.

Three Russians appear to have kept their refunds despite being put under US and European sanctions after Appleby took them on as clients. Most private clients were from Russia, Ukraine, the Middle East and Africa, with their business empires run outside Europe and typically offshore.

A glance at the Manx aircraft registry reveals some big British names, though they were not Appleby clients and there is no suggestion they used structures to avoid tax.

The tax exile Richard Branson sold a jet, registered M-VGIN, to one of Appleby’s clients. The former Formula One supremo Bernie Ecclestone’s 94-seat British Aerospace plane, M-STRY, is also Manx-registered, while the Brexit financier Jim Mellon, resident in the Isle of Man, holds M-ELON via a Manx company.

Following questions from the Guardian and other media partners, the island, which is a crown dependency and ultimately answerable to the British government, has called in the UK Treasury to oversee a review of the refunds it has issued to 231 jet-leasing companies since 2011. It has now admitted that all of those schemes paid no import VAT, and a total of £790m was refunded – equal to just over $1bn. Many of the jets were paid for in US dollars.



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In a rushed press conference, the Isle of Man’s chief minister, Howard Quayle, said an initial internal review had found no evidence of wrongdoing, but “it is imperative we take steps to defend the Isle of Man’s position”.



The island’s private jet register is the second biggest in Europe after Germany’s. Set up in 2007, it is expected to notch up its 1,000th aircraft this year.

Facebook Twitter Pinterest Vladimir Putin, left, with his close friend Arkady Rotenberg, who was issued a VAT refund on his jet. Photograph: Sasha Mordovets/Getty Images

Appleby files suggest Manx customs has processed refunds for Putin’s confidant and judo partner Arkady Rotenberg and his brother Boris Rotenberg, who are subject to sanctions in Europe and the US; Leonid Mikhelson, the chief executive of the sanctions-hit Russian gas group Novatek, who transferred to another Isle of Man company after his business was blacklisted; and the aluminium magnate Oleg Deripaska, who has been investigated in Spain for alleged money laundering and mafia connections, but denies any wrongdoing.

A spokesperson for Mikhelson said he “acts strictly within the boundaries of the law and in compliance with applicable legislation at all times”. Deripaska and the Rotenbergs did not respond to requests for comment.

Bakr bin Laden, half-brother of the al-Qaida founder, brought his jet into Europe via the Isle of Man. The governor of Nigeria’s central bank is also revealed to have been the co-owner of a Bermudan company used as part of a scheme to import a $50m Gulfstream jet.

Appleby helped change the name of a jet for the Yemeni businessman Shaher Abdulhak Besher, four months after his son fled London having been named as the sole suspect in the rape and murder of a 23-year-old student. British police believe Besher’s son used his father’s plane to abscond.

Facebook Twitter Pinterest Leonid Mikhelson. Photograph: Bloomberg/Getty Images

After examining the files, Rita de la Feria, the chair in tax law at the University of Leeds, called into question what she described as “loose enforcement of the law” by the Manx government.



In order to circulate freely through Europe, private jets must be formally imported, with VAT paid on the purchase price. Customs officers will ask to see the import certificate, known as a C88A, as proof that the plane has been taxed correctly. French customs have been known to impound aircraft until proof of correct taxation is supplied.

EY, which typically charged £10,000 per client, provided the tax advice needed to obtain a C88A certificate from the Isle of Man without having to pay import VAT. The rate in the Isle of Man is 20%, the same as in the UK. The two jurisdictions share the job of collecting VAT and the Manx government says it mirrors UK law on VAT, and claims to apply it in the same way.

Because of the customs agreement, if a jet or any other goods are imported into the island, they are regarded as having been imported into the UK, and therefore into Europe.

Facebook Twitter Pinterest Oleg Deripaska. Photograph: Alexander Zemlianichenko/AP

VAT can be reclaimed if the goods are used as part of a genuine business. So clients paid Appleby to help them set up chains of two or three companies as part of a leasing enterprise. But the data shows these businesses had no staff, no offices, no computers and no phone lines. And most had no real customers; the owners simply leased their jets from themselves.

The rules state that VAT must be paid in proportion to any private use of the jet, both on the purchase price and the continuing cost of flights. However, the Paradise Papers reveal that since 2011, the Manx government has been rubber-stamping structures allowing jet owners to pay no VAT, even when it appears their planes are used for some personal flights.



Most jets are used mainly for business travel, but also for the occasional holiday or family visit. If one-fifth of flights were for leisure, $200m of the $1bn given away to jet owners by the Isle of Man over the past six years may have been wrongly refunded.

The VAT avoidance being conducted on the Isle of Man is not widely available elsewhere in Europe. Most member states, including the UK, would have collected some tax on those imports. Their tax revenues, needed to build airports, staff air traffic control and pay the salaries of customs officers, are potentially being eroded by such jet-leasing schemes.

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“Using a leasing scheme as such is not abusive,” said Edoardo Traversa, a tax specialist and law professor at Belgium’s Louvain University. “However, if you take other elements into consideration, such as the absence in motive of setting up those companies, the fact those companies do not have any substance, all that is likely to lead the court to consider that the scheme is abusive.”

De la Feria said: “It looks suspicious that there are so many companies carrying out business in the Isle of Man, getting all this refund VAT, and actually not having any physical presence there. It seems to me like a rather loose enforcement of the law.



“According to the spirit of the law, you should be paying VAT on the private consumption of jets,” she said. “The fact that using this scheme means you are not paying VAT on the private consumption of jets means that the tax advantage you are obtaining is contrary to the purpose of the law. It is clearly artificial because the main purpose of the scheme is to obtain the tax advantage.”

Facebook Twitter Pinterest A Gulfstream G650ER. Photograph: Gulfstream

The files suggest that some of the structures, including one used to hold Deripaska’s Gulfstream, may be illegal even under the Isle of Man interpretation of tax rules. His jet scheme had no money flowing through it – invoices were being issued, but not paid. Emails suggest Manx customs were made aware of this, but appear to have taken no action to recover the VAT. Deripaska did not respond to a request for comment.

Traversa did not single out any case as fraudulent. However, as a general rule he said: “If false information has been provided to the tax administration, if in reality those leasing structures only exist on paper, if [when] you trace the payments you realise there is no actual payment, that is fraud. It’s not enough to have a contract. If all the parties involved acted as if there was no lease, then you are lying to tax authority and that is fraud.”

In a statement, Isle of Man Customs and Excise said leasing structures were established practice worldwide in the global aviation sector. It said the cases raised by the Guardian and the International Consortium of Investigative Journalists had been investigated and it had found no evidence of wrongdoing.

“The island’s economy has been built on a reputation for openness, transparency and adherence to the international rule of law. We are committed to investigation [of] illegal activity and abuse of the rules developed and agreed by the global community,” the agency said.



EY said: “All our advice, whether in planning or compliance, is based on our knowledge of tax law and providing transparency to tax authorities. EY does not offer mass market tax-planning schemes. We support efforts to ensure that tax systems remain robust and relevant to today’s ever-changing business world.”



Appleby declined to comment on matters concerning individual clients. In a statement addressing concerns raised by the Paradise Papers, the firm rejected allegations of wrongdoing. It said: “We take any allegation of wrongdoing, implicit or otherwise, extremely seriously. Appleby operates in highly regulated jurisdictions and like all professional organisations in our regions, we are subject to frequent regulatory checks and we are committed to achieving the high standards set by our regulators. We are also committed to the highest standards of client service and confidentiality. It is what we stand for. This commitment is unequivocal.”