0:00:01 > 0:00:02Crikey, she sounds pretty stressed.
0:00:02 > 0:00:06Where exactly are you?!
0:00:06 > 0:00:09This is a story about money, and how the rich and powerful
0:00:09 > 0:00:12try to hide it from the taxman.
0:00:12 > 0:00:16It's the big guys who are using their power,
0:00:16 > 0:00:18their strength and their monetary advantage in order
0:00:18 > 0:00:27to game the system.
0:00:29 > 0:00:32There do seem to be different rules for billionaires.
0:00:32 > 0:00:34In one of the biggest offshore data leaks in history,
0:00:34 > 0:00:36we learn how corporate giants shift their profits
0:00:36 > 0:00:39and avoid the taxman thanks to the world's tax havens.
0:00:39 > 0:00:41The trouble with this stuff isn't that it's illegal.
0:00:41 > 0:00:42The trouble is that it's legal.
0:00:42 > 0:00:45If these companies are not paying their fair share of taxes,
0:00:45 > 0:00:47it means you and I are paying more.
0:00:47 > 0:00:48It's as simple as that.
0:00:48 > 0:00:50It's a story about how big business and billionaires
0:00:50 > 0:00:53use an elite law firm, operating in tax havens right
0:00:53 > 0:00:57on Britain's doorstep.
0:00:57 > 0:01:00It looks like the Isle of Man ExecuJet company
0:01:00 > 0:01:02was a tax avoidance vehicle, which allowed ExecuJet to avoid
0:01:02 > 0:01:06more than $1 million in tax over three years.
0:01:06 > 0:01:08That is absolutely wrong.
0:01:08 > 0:01:12These are Scotland's Paradise Papers.
0:01:24 > 0:01:29You've been hearing about a leak ? it's a big one.
0:01:29 > 0:01:31It's from inside Appleby, a law firm with offices
0:01:31 > 0:01:33in every major tax haven.
0:01:33 > 0:01:36More than 13 million Appleby documents were obtained by German
0:01:36 > 0:01:40newspaper Suddeutsche Zeitung, who shared them with
0:01:40 > 0:01:45the International Consortium of Investigative Journalists.
0:01:45 > 0:01:49The ICIJ has been coordinating a global investigation,
0:01:49 > 0:01:52which includes BBC Panorama and the Guardian newspaper,
0:01:52 > 0:01:59and involves more than 350 journalists in over 100 countries.
0:01:59 > 0:02:01These are documents that should never have seen
0:02:01 > 0:02:03the light of day, basically.
0:02:03 > 0:02:12Every person who pays taxes should care about what we're seeing here.
0:02:12 > 0:02:20We are looking at a firm called Appleby,.
0:02:20 > 0:02:22We are looking at a firm called Appleby,.
0:02:22 > 0:02:24Appleby, which is the principal focus of this investigation,
0:02:24 > 0:02:27they're part of what they call the magic circle of offshore law
0:02:27 > 0:02:30firms - in other words, the elite of the elite,
0:02:30 > 0:02:32and their clients are also the elite of the elite.
0:02:32 > 0:02:34And there are some big names.
0:02:34 > 0:02:35Lewis Hamilton's tax dodge on his private jet.
0:02:35 > 0:02:38Cast members of Mrs Brown's Boys' offshore tax-avoidance scheme.
0:02:38 > 0:02:41And the inner circles of the most powerful men in the world.
0:02:41 > 0:02:43You can't dismiss this as just a few bad guys.
0:02:43 > 0:02:45This is a whole system used by the most powerful
0:02:45 > 0:02:47and the wealthiest, the biggest corporations - exposed.
0:02:47 > 0:02:50BBC Scotland's investigations team is the only Scottish media partner
0:02:50 > 0:02:52with access to the leak, and has been working
0:02:52 > 0:02:54inside the Paradise Papers for the past six months.
0:02:54 > 0:02:56There are thousands of documents relating to Scots
0:02:56 > 0:02:58businesses and people - some of them you'll have heard of,
0:02:58 > 0:03:07and some you won't.
0:03:07 > 0:03:10But they've all got one thing in common ? avoiding tax.
0:03:10 > 0:03:13Blackstone - not a household name, but a global private equity giant
0:03:13 > 0:03:15managing over $350 billion worth of assets.
0:03:15 > 0:03:17It's founder and chief executive is Stephen Schwarzman,
0:03:17 > 0:03:22a close confidant of President Trump.
0:03:22 > 0:03:25And his company has a major interest in Scotland.
0:03:32 > 0:03:35St Enoch Centre in Glasgow.
0:03:35 > 0:03:37One of the most recognisable buildings in the country.
0:03:37 > 0:03:45It was bought by Blackstone in 2013 for £190 million.
0:03:45 > 0:03:48Blackstone is one of Appleby's biggest customers, and the law firm
0:03:48 > 0:03:51was integrally involved in the purchase of St Enoch.
0:03:51 > 0:03:56The Paradise Papers lay bare the lengths Blackstone,
0:03:56 > 0:03:58one of the biggest, richest companies in the world,
0:03:58 > 0:04:03went to to avoid paying UK taxes.
0:04:03 > 0:04:06The data reveals the confidential reports by one of the UK's
0:04:06 > 0:04:09biggest accountancy firms, Deloitte.
0:04:09 > 0:04:13Under the codename Project Genesis, they provide a step-by-step guide,
0:04:13 > 0:04:17tailor-made to help Blackstone avoid tax at every stage of
0:04:17 > 0:04:20the purchase of St Enoch.
0:04:20 > 0:04:23It starts with a deft swerve of £7.6 million
0:04:23 > 0:04:27in stamp duty land tax, made by possible by owning
0:04:27 > 0:04:32the shopping centre through a Jersey property Trust, or JPUT.
0:04:32 > 0:04:36Jersey is a Crown Dependency - which means it's independent,
0:04:36 > 0:04:40but ultimately the UK is responsible.
0:04:40 > 0:04:42And, like several of the UK's Overseas Territories,
0:04:42 > 0:04:45it's a tax haven.
0:04:45 > 0:04:48Jersey specialises in Trusts, and there are thousands
0:04:48 > 0:04:49of them based here.
0:04:49 > 0:04:52One of the many main benefits to holding, say,
0:04:52 > 0:04:55property in a Trust is privacy - it's completely hidden
0:04:55 > 0:04:57from the public.
0:04:57 > 0:05:00But the other main attraction is that it helps companies avoid
0:05:00 > 0:05:08paying British taxes.
0:05:08 > 0:05:11This Trust we're interested in is operated by something the called
0:05:11 > 0:05:14St Enoch Centre Trustee Company Limited.
0:05:14 > 0:05:18Its registered address is here, at Appleby's Jersey office.
0:05:18 > 0:05:21Its directors are Appleby staff.
0:05:21 > 0:05:24It's a brass plate company, which means a company with no
0:05:24 > 0:05:29obvious economic relationship to a shopping centre in Glasgow.
0:05:29 > 0:05:31What did the islands' leading politician think about companies
0:05:31 > 0:05:35using Jersey to avoid the UK taxman?
0:05:35 > 0:05:37If there are concerns in the United Kingdom about how
0:05:37 > 0:05:40people are structuring their investments into
0:05:40 > 0:05:42the United Kingdom...
0:05:42 > 0:05:44If there are concerns there, then the United Kingdom Government
0:05:44 > 0:05:47should change its tax code to deal with them.
0:05:47 > 0:05:49Some organisations use Jersey as part of a complicated
0:05:49 > 0:05:51ownership structure.
0:05:51 > 0:05:53Some might say that the way that the way Jersey Trusts
0:05:53 > 0:05:56operate isn't transparent.
0:05:56 > 0:06:01The United Kingdom Government and their competent authorities can
0:06:01 > 0:06:03request information about what's happening in Jersey wherever
0:06:03 > 0:06:07they might have a concern, and we're at the stage now
0:06:07 > 0:06:13where that information can be exchanged in as little as an hour.
0:06:13 > 0:06:15We asked George Turner, tax researcher and campaigner,
0:06:15 > 0:06:18to look into this structure for us.
0:06:18 > 0:06:21What you have here at the St Enoch Centre to all intents
0:06:21 > 0:06:22and purposes is an economic fiction.
0:06:22 > 0:06:25The property is owned by a Trust in Jersey.
0:06:25 > 0:06:30So when the original owners sold the property to Blackstone,
0:06:30 > 0:06:33they weren't selling the property itself.
0:06:33 > 0:06:38They were selling an interest in the Trust that own the property,
0:06:38 > 0:06:43and because that Trust is owned offshore, they can avoid stamp duty.
0:06:43 > 0:06:47So that's £7 million or £8 million saved right away.
0:06:47 > 0:06:51Saved, or taken.
0:06:52 > 0:06:55The Jersey Trust is owned by a series of Blackstone
0:06:55 > 0:06:57Luxembourg companies.
0:06:57 > 0:07:01Despite having a major base in London, Blackstone has been given
0:07:01 > 0:07:07non-resident landlord status by HMRC, meaning they can collect
0:07:07 > 0:07:12rental income on the property tax-free and send it to Luxembourg.
0:07:12 > 0:07:15The data suggests that could be £10 million a year,
0:07:15 > 0:07:20but they should pay corporation income tax on that in Luxembourg.
0:07:20 > 0:07:23But do they?
0:07:23 > 0:07:25So what appears to be happening is that the rental
0:07:25 > 0:07:28income which is coming in, the companies that are receiving
0:07:28 > 0:07:30that are then borrowing huge amounts of money from other companies
0:07:30 > 0:07:32which are part of the Blackstone Group.
0:07:32 > 0:07:35Now, when they borrow that money, they need to pay interest on it,
0:07:35 > 0:07:37and those interest payments destroy any profitability
0:07:37 > 0:07:40in those companies.
0:07:40 > 0:07:42And the end result is no tax is due?
0:07:42 > 0:07:45Because they're borrowing money from themselves,
0:07:45 > 0:07:49they can claim a tax deduction on that.
0:07:49 > 0:07:52According to registry documents, the Luxembourg companies
0:07:52 > 0:07:54in the St Enoch structure paid just a few thousand pounds
0:07:54 > 0:07:57a year in taxes.
0:07:57 > 0:07:59And, guess what?
0:07:59 > 0:08:01If Blackstone sells the place on, the Jersey Trust structure
0:08:01 > 0:08:04will allow them to avoid capital gains tax, too ? which could run
0:08:04 > 0:08:08into tens of millions.
0:08:08 > 0:08:10It seems like a complete charade.
0:08:10 > 0:08:13A Glasgow shopping centre generating cash in rental
0:08:13 > 0:08:18income here in Scotland, but that cash flows tax-free out
0:08:18 > 0:08:23of Scotland and over to Luxembourg via the tax haven
0:08:23 > 0:08:28where the St Enoch Centre is effectively owned in Jersey.
0:08:28 > 0:08:37Deloitte, the architects of the structure, declined to comment.
0:08:37 > 0:08:39It's not the first time Blackstone used these methods.
0:08:39 > 0:08:42This is Chiswick Park ? a business centre in West London.
0:08:42 > 0:08:45Blackstone bought it in 2011 - and in tax advice, this time
0:08:45 > 0:08:49from accountancy firm PwC.
0:08:49 > 0:08:51And there was no messing about.
0:08:51 > 0:08:54It states the proposed tax structure was designed:
0:08:54 > 0:08:57To mitigate, where possible, taxes on acquisition.
0:08:57 > 0:09:00To minimise ongoing income, corporate, withholding
0:09:00 > 0:09:04and other taxes in UK, Jersey and Luxembourg.
0:09:04 > 0:09:10To minimise tax on exit from a UK, Jersey and Luxembourg perspective.
0:09:10 > 0:09:14The language is quite shocking, because it's so blatant
0:09:14 > 0:09:17what the intention is.
0:09:17 > 0:09:20Blackstone sold Chiswick Park to the Chinese government
0:09:20 > 0:09:25in 2014 for a £300 million.
0:09:25 > 0:09:29So it would appear Blackstone followed the PwC advice
0:09:29 > 0:09:33to the letter, and paid no stamp duty, paid next to no
0:09:33 > 0:09:36income tax on the millions of pounds of rental income,
0:09:36 > 0:09:42and no capital gains on the disposal.
0:09:42 > 0:09:44Not a bad bit of business.
0:09:44 > 0:09:46PwC told the BBC...
0:09:46 > 0:09:49"The advice we provide is given in accordance
0:09:56 > 0:10:00In a statement, Blackstone said: "Blackstone's investments are wholly
0:10:00 > 0:10:04compliant with UK and international tax laws and regulations".
0:10:04 > 0:10:06The properties were acquired by "Institutional investors,
0:10:06 > 0:10:09and are of a type commonly used for decades for investments
0:10:09 > 0:10:11in UK real estate."
0:10:11 > 0:10:14And were "Adopted after appropriate advice was taken from leading tax
0:10:14 > 0:10:18and legal advisors".
0:10:20 > 0:10:22So, whilst Blackstone was the beneficiary of the structure,
0:10:22 > 0:10:26it was Appleby who implemented it.
0:10:26 > 0:10:30And that's what they do.
0:10:30 > 0:10:32They'll create companies for you in tax havens,
0:10:32 > 0:10:35even provide the directors.
0:10:35 > 0:10:38There are thousands of examples of this in data, and some
0:10:38 > 0:10:43specifically involves one of Scotland's biggest industries -
0:10:43 > 0:10:49Ithaca Energy, a Canadian company with its headquarters in Aberdeen.
0:10:49 > 0:10:52In 2012, they were in the process of buying a share in this.
0:10:52 > 0:10:56FPF-1 is a floating oil production vessel.
0:10:56 > 0:11:03The company agreed a deal for £18 million to buy half
0:11:03 > 0:11:05of FPF-1 and share it with two other companies.
0:11:05 > 0:11:07But just days before the transaction, they decide
0:11:07 > 0:11:09they need a shell company in a tax haven.
0:11:09 > 0:11:15Why would a Canadian company with its headquarters in Aberdeen
0:11:15 > 0:11:20need a Bermudan company to own its stake in an oil vessel
0:11:20 > 0:11:27working in the North Sea?
0:11:27 > 0:11:31The Paradise Papers could have the answer.
0:11:31 > 0:11:34Ithaca's Aberdeen office tells Appleby: "It is important
0:11:34 > 0:11:36for our tax position that the company is managed
0:11:36 > 0:11:38and controlled from Bermuda".
0:11:38 > 0:11:39Seems clear enough.
0:11:39 > 0:11:42Ithaca need the company to operate properly, for tax reasons.
0:11:42 > 0:11:50Appleby agree to provide a local director.
0:11:50 > 0:11:54There're reasons to head to Bermuda other than its sun-kissed beaches -
0:11:54 > 0:11:58mainly the island's generous tax laws.
0:11:58 > 0:12:01There are no taxes on profits or income.
0:12:01 > 0:12:04But does the company have any real business in Bermuda?
0:12:04 > 0:12:12Or is it just a show for tax purposes?
0:12:12 > 0:12:15Take this minute of a company board meeting in June 2012.
0:12:15 > 0:12:20It says two Ithaca executives called in from Canada and the UK,
0:12:20 > 0:12:24and Appleby's Bermudian director fails to attend.
0:12:24 > 0:12:30An Ithaca board meeting in Bermuda, with apparently no-one in Bermuda.
0:12:30 > 0:12:34We asked an international tax expert for his opinion.
0:12:34 > 0:12:37I think the reality of the matter is this whole show was being run
0:12:37 > 0:12:40from Aberdeen, not from Bermuda.
0:12:40 > 0:12:45The only reason to have a Bermudan company in there is because
0:12:45 > 0:12:48Bermuda's a tax haven, and they can get interest into it
0:12:48 > 0:12:50without paying taxes, and whenever the Canadian company
0:12:50 > 0:12:53wants to withdraw the money they can withdraw the money
0:12:53 > 0:12:54without paying any taxes.
0:12:54 > 0:12:57I can't see any other reason to have this extra holding
0:12:57 > 0:13:00company in the structure.
0:13:00 > 0:13:03FPF-1 only started producing oil this year - and,
0:13:03 > 0:13:07because of tax breaks, won't pay UK tax until 2020 anyway.
0:13:07 > 0:13:10So what's the point?
0:13:10 > 0:13:12I think the point is looking forward.
0:13:12 > 0:13:14You want to plan ahead when you do these things,
0:13:14 > 0:13:19because doing it when you actually are profitable is harder.
0:13:19 > 0:13:22For a few weeks, we've been trying to get some answers from Ithaca
0:13:22 > 0:13:28about just what exactly the purpose of this Bermudan company was.
0:13:28 > 0:13:31They say it's got nothing to do with tax.
0:13:31 > 0:13:35Our evidence suggests otherwise.
0:13:35 > 0:13:38I'm going to go and knock on their door and see
0:13:38 > 0:13:46if someone will talk to us.
0:13:46 > 0:13:54Hello.Hello.Mark Daly, BBC Scotland.How are you?Very well.
0:13:54 > 0:13:56We're just trying to find out what the purpose
0:13:56 > 0:13:58of the Bermudan company is?
0:13:58 > 0:14:01The Bermudan company exists to hold an asset that we have a share of.
0:14:01 > 0:14:03Why hold it in Bermuda?
0:14:03 > 0:14:09It's convenient for future deals that we may do.
0:14:09 > 0:14:11It's a complex business.
0:14:11 > 0:14:13Is it a real company, the Bermudan company?
0:14:13 > 0:14:14Absolutely.
0:14:14 > 0:14:16Because nothing really happens there, does it?
0:14:16 > 0:14:18I mean, you have board meetings.
0:14:18 > 0:14:21You've even had board meetings where nobody's
0:14:21 > 0:14:23been physically present, and people have been
0:14:23 > 0:14:24calling in from abroad.
0:14:24 > 0:14:27That would suggest, would it not, that the company's being
0:14:27 > 0:14:34managed and controlled from outside of Bermuda?
0:14:34 > 0:14:39Mark, Mark, you're concocting a story, and frankly
0:14:39 > 0:14:44part of the reason that
0:14:44 > 0:14:46to have approached this with a story in mind,
0:14:46 > 0:14:49and I don't think it's helpful to create a story based
0:14:49 > 0:14:50on partial information.
0:14:50 > 0:14:52Maybe you could give us the full picture, then?
0:14:52 > 0:14:54Now, the information that we have suggests very strongly
0:14:54 > 0:14:57that the Bermudan company was created for tax purposes.
0:14:57 > 0:14:58No, no that's not true.
0:14:58 > 0:15:00I think we've said very clearly that that's not true.
0:15:00 > 0:15:02Now, you can choose to believe us, or not believe,
0:15:02 > 0:15:06us, that's up to you.
0:15:06 > 0:15:11Have a good day.All the best, thank you very much for speaking to us.
0:15:11 > 0:15:13In a statement, Appleby said it works in "highly
0:15:13 > 0:15:15regulated jurisdictions", and advises clients
0:15:15 > 0:15:21on "legitimate and lawful ways" to conduct their business.
0:15:21 > 0:15:25Within the millions of documents in this leak, we can see it's not
0:15:25 > 0:15:27just corporate giants who have used Appleby to try to
0:15:27 > 0:15:30help them avoid tax.
0:15:30 > 0:15:32Our data reveals even middle-sized property developers
0:15:32 > 0:15:35were getting in on the act.
0:15:35 > 0:15:39This is Logie Green Road in Edinburgh.
0:15:39 > 0:15:41In 2009, a number of addresses on this street were sold
0:15:41 > 0:15:45for millions of pounds.
0:15:45 > 0:15:47The deal involved a group of investors who included
0:15:47 > 0:15:51Chris Stewart and Alex Watts.
0:15:51 > 0:15:56The deal was done for a very healthy profit indeed.
0:15:56 > 0:16:00The data shows more than £5 million profit was made.
0:16:00 > 0:16:03£750,000 due to Stewart and £1.3 million to Watts.
0:16:03 > 0:16:06The data suggests they tried to take their cut offshore
0:16:06 > 0:16:09to the Isle of Man, where Appleby, who were then called
0:16:09 > 0:16:11Dickinson Cruickshank, created a land Trust called
0:16:11 > 0:16:15the Palmerston Partnership.
0:16:15 > 0:16:19An internal Appleby memo sets out the purpose of the scheme: "A UK
0:16:19 > 0:16:21property development in Scotland utilising a Land Trust Partnership
0:16:21 > 0:16:27structure to mitigate any tax due".
0:16:27 > 0:16:28"Profits from the sale have been distributed
0:16:28 > 0:16:31amongst the partnership".
0:16:31 > 0:16:34And here's how it worked for the Edinburgh pair.
0:16:34 > 0:16:35An Isle of Man vehicle called the Palmerston
0:16:35 > 0:16:38Partnership was created.
0:16:38 > 0:16:39Two offshore Trusts were also created -
0:16:39 > 0:16:43one for Stewart, one for Watts.
0:16:43 > 0:16:45The profits from the Logie Green land deal flowed into
0:16:45 > 0:16:48the partnership in the Isle of Man.
0:16:48 > 0:16:51From there, Stewart and Watts' cuts were moved into their Trusts, of
0:16:51 > 0:16:55which they were the beneficiaries.
0:16:55 > 0:16:58And it gets even more complicated.
0:16:58 > 0:17:00Appleby set up two companies to act as Trustees, called
0:17:00 > 0:17:03Muttermore and Cuttermore.
0:17:03 > 0:17:08These were supposedly independent of Stewart and Watts.
0:17:08 > 0:17:11Appleby staff then sign off on a series of loans to companies
0:17:11 > 0:17:12registered in Scotland, which were controlled
0:17:12 > 0:17:16by Stewart and Watts.
0:17:16 > 0:17:19So what does all that mean?
0:17:19 > 0:17:21I needed an expert, and Philip Simpson is one
0:17:21 > 0:17:24of the country's leading tax QCs.
0:17:24 > 0:17:29The structure is well-known as a tax avoidance structure.
0:17:29 > 0:17:32Certainly the documents I've seen strongly suggest the motive
0:17:32 > 0:17:42for using it was to avoid UK tax.
0:17:43 > 0:17:45So it's difficult to come to any other conclusion
0:17:45 > 0:17:48than that the purpose of it was avoiding UK tax
0:17:48 > 0:17:57in a fairly aggressive manner.
0:17:57 > 0:18:00But in 2012, HMRC came calling.
0:18:00 > 0:18:05A deeply unhappy Mr Watts wrote to Appleby expressing concern over
0:18:05 > 0:18:07the way the structure had been managed, which could "weaken any
0:18:07 > 0:18:09position with HMRC", which he said would be "looking
0:18:09 > 0:18:14to attack wherever they can".
0:18:14 > 0:18:16Seemingly worried HMRC will see through the scheme,
0:18:16 > 0:18:18Mr Watts writes: "If as a layman I am picking these up,
0:18:18 > 0:18:20what am I missing?
0:18:20 > 0:18:24That experts at HMRC will not".
0:18:24 > 0:18:26In layman's terms, the taxman caught up with them.
0:18:26 > 0:18:32That's what it looks like.
0:18:32 > 0:18:35If one might put it in a colloquial manner, then yes, one
0:18:35 > 0:18:40might put it like that.
0:18:40 > 0:18:42Appleby documents suggest the pair had, at least initially,
0:18:42 > 0:18:44avoided more than £1 million in tax from the profits.
0:18:44 > 0:18:47So I had a few questions for Mr Watts.
0:18:47 > 0:18:48Mr Watts, Mr Watts.
0:18:48 > 0:18:51Hi there, Mark Daly, BBC Scotland.
0:18:51 > 0:18:53I've just got a few questions for you, would you mind?
0:18:53 > 0:18:54I would mind, actually.
0:18:54 > 0:18:55Would you?
0:18:55 > 0:18:58I'd just like to ask you about your offshore Trust.
0:18:58 > 0:19:01We have written to you to ask a few questions about your Trust.
0:19:01 > 0:19:03And we've written back, so I think we've been fairly
0:19:03 > 0:19:05reasonable with you, and we've written back to you.
0:19:05 > 0:19:08I think what you're doing is really pretty unethical, actually,
0:19:08 > 0:19:12from journalistic guidelines so I'd rather just leave it there.
0:19:12 > 0:19:13Well, the thing is, you haven't actually
0:19:13 > 0:19:15answered our questions, which is why we're
0:19:15 > 0:19:16here this morning.
0:19:16 > 0:19:17Well, you know...
0:19:17 > 0:19:19On the profits of the Palmerston Partnership,
0:19:19 > 0:19:20£1.3 million was your share.
0:19:20 > 0:19:22How much tax on that did you pay?
0:19:22 > 0:19:24OK, I'm not going to answer.
0:19:24 > 0:19:26You've written to us, and we've responded
0:19:26 > 0:19:27to you professionally and properly.
0:19:27 > 0:19:37What you're doing here...
0:19:40 > 0:19:43Mr Watts' spokesperson told us he was a "positive tax
0:19:43 > 0:19:45contributor" who had always lodged his tax returns.
0:19:45 > 0:19:47He added that "following legislative changes", Mr Watts entered
0:19:47 > 0:19:54into "open and cooperative discussion with HMRC" to establish
0:19:54 > 0:19:56any potential tax due on a "retrospective basis".
0:19:56 > 0:19:58Mr Stewart's spokesperson told us that "all tax
0:19:58 > 0:20:00has been paid in full", and any "retrospective tax payments
0:20:00 > 0:20:03paid" ahead of "timescales discussed with HMRC".
0:20:03 > 0:20:06She added that there was "no case to answer",
0:20:06 > 0:20:08that HMRC was "in possession of all relevant facts" and that "no
0:20:08 > 0:20:14tax is owed to HMRC".
0:20:14 > 0:20:18The key to the Palmerston Partnership was the Isle of Man.
0:20:18 > 0:20:20Stories about the island come up again and again
0:20:20 > 0:20:24in the Paradise Papers.
0:20:24 > 0:20:27I'm here to investigate one of them ? it involves
0:20:27 > 0:20:35a billionaire and private jets.
0:20:35 > 0:20:37The aviation business is clearly a big part of what Appleby
0:20:37 > 0:20:39does on the Isle of Man.
0:20:39 > 0:20:41The trouble with this stuff isn't that it's illegal.
0:20:41 > 0:20:44The trouble is that it's legal, but it's only available to people
0:20:44 > 0:20:46with enough money to pay the right lawyers and accountants
0:20:46 > 0:20:51to do it for them.
0:20:51 > 0:20:53One day, in June 2012, there was much excitement
0:20:53 > 0:20:56in the office behind me.
0:20:56 > 0:20:58Appleby had been contacted by a very exclusive private jet company
0:20:58 > 0:21:02from Switzerland, called ExecuJet.
0:21:02 > 0:21:05Could you set up an Isle of Man company for us, Appleby were asked.
0:21:05 > 0:21:07Yes, we could, Appleby said.
0:21:07 > 0:21:09Could you provide some directors for us?
0:21:09 > 0:21:10Yes, we could, Appleby said.
0:21:10 > 0:21:12And can you do it today?
0:21:12 > 0:21:16We'll try our very best, Appleby said.
0:21:16 > 0:21:19The firm even waives some of its usual background checks
0:21:19 > 0:21:22to guarantee it closes the deal.
0:21:22 > 0:21:24Perhaps because the owner of ExecuJet is one of
0:21:24 > 0:21:28the richest men in the world - Dermot Desmond, best known
0:21:28 > 0:21:30here as the largest single shareholder of Scotland's biggest
0:21:30 > 0:21:36football team, and with an estimated fortune of around £2 billion.
0:21:36 > 0:21:39He's familiar with offshore ? his 35% share of Celtic
0:21:39 > 0:21:44is held by in Gibraltar.
0:21:44 > 0:21:45He's also no stranger to controversy.
0:21:45 > 0:21:51Matt Cooper, sued by Mr Desmond in 2011, has written extensively him.
0:21:51 > 0:21:54Dermot Desmond came to prominence during the 1980s in Ireland,
0:21:54 > 0:21:57and he was regarded as a somewhat brash, somewhat flash figure.
0:21:57 > 0:22:00You don't become a billionaire unless you are absolutely aggressive
0:22:00 > 0:22:03in making sure that you make as much profit as you can from your
0:22:03 > 0:22:09businesses and that you keep as much of that profit for yourself.
0:22:09 > 0:22:12Mr Desmond's luxury jet firm had offices all over the world.
0:22:12 > 0:22:18So why did they need Appleby to make them an Isle of Man company?
0:22:18 > 0:22:21This internal Appleby memo states ExecuJet has taken Swiss tax
0:22:21 > 0:22:26guidance and found out that having their Swiss headquarters
0:22:26 > 0:22:28as the main company on their insurance policy "has
0:22:28 > 0:22:31a negative tax consequence", as they would need to pay a 5%
0:22:31 > 0:22:33levy under Swiss law.
0:22:33 > 0:22:39"ExecuJet would like to set up a company in the Isle of Man,
0:22:39 > 0:22:41namely ExecuJet Limited, to be the primary insured
0:22:41 > 0:22:45under the policy".
0:22:45 > 0:22:48So by switching to a brass plate company set up by Appleby,
0:22:48 > 0:22:50ExecuJet swerves up to $200,000 a year in Swiss taxes,
0:22:50 > 0:22:54just like that.
0:22:54 > 0:23:00But that's not all.
0:23:00 > 0:23:02ExecuJet also receives a brokerage fee back
0:23:02 > 0:23:05from its insurers every year - but this is classed as income,
0:23:05 > 0:23:06and should be taxed in Switzerland.
0:23:06 > 0:23:08Appleby can see to that, too.
0:23:08 > 0:23:11In another memo, Appleby write: "This is a low-risk structure that
0:23:11 > 0:23:14has been set up to receive monies due to EAG under the insurance
0:23:14 > 0:23:18policies on the group aircraft.
0:23:18 > 0:23:20By having the monies paid into the Isle of Man entity,
0:23:20 > 0:23:27EAG are not required to pay Swiss tax on the income of around 22%.
0:23:27 > 0:23:29We expect to receive two payments per year of approximately
0:23:29 > 0:23:36US$600k under this policy".
0:23:36 > 0:23:40For ExecuJet to get the tax benefits of being based in the Isle of Man,
0:23:40 > 0:23:42it has to be managed and controlled from there.
0:23:42 > 0:23:44But the only employees there are the directors
0:23:44 > 0:23:46Appleby provided for them.
0:23:46 > 0:23:51And it seems Switzerland was calling the shots.
0:23:51 > 0:23:56This email from head office clearly instructs Appleby to transfer more
0:23:56 > 0:24:00than $500,000 to the ExecuJet group's bank account in Switzerland.
0:24:00 > 0:24:05My understanding, having read the legislation,
0:24:05 > 0:24:12is that if individuals in Switzerland are making
0:24:12 > 0:24:14all decisions as regards what the IOM companies does,
0:24:14 > 0:24:18then, from a Swiss point of view, the IOM company may be resident
0:24:18 > 0:24:21in Switzerland for tax purposes.
0:24:21 > 0:24:23And if it's resident in Switzerland, then despite the structure that
0:24:23 > 0:24:28has been put in place, stamp duty is due on the insurance
0:24:28 > 0:24:34premium paid, and Swiss corporation is due on the money received back
0:24:34 > 0:24:35from the insurance broker.
0:24:35 > 0:24:40So the Swiss taxman might have something to say about the up
0:24:40 > 0:24:45to $1.3 million in tax that seems to have been avoided
0:24:45 > 0:24:47by Mr Desmond's company.
0:24:47 > 0:24:50Would you say this was an aggressive tax avoidance vehicle in operation?
0:24:50 > 0:24:52It would certainly be reasonable to describe this as aggressive,
0:24:52 > 0:24:58given in particular what appears to be a lack of economic
0:24:58 > 0:25:04substance to the IOM company.
0:25:04 > 0:25:06I hoped someone at ExecuJet Isle of Man's registered office,
0:25:06 > 0:25:15which is here at Appleby, could help with some answers.
0:25:15 > 0:25:16No joy.
0:25:16 > 0:25:21So perhaps Mr Desmond himself could provide some answers.
0:25:21 > 0:25:27We knew there would be one place his own jet would be flying
0:25:27 > 0:25:29into on a Champions League evening, so we tried to catch
0:25:29 > 0:25:31up with him there.
0:25:31 > 0:25:33Were you aware that, whilst the company was under your control,
0:25:33 > 0:25:36that ExecuJet was using a shell company in the Isle of Man
0:25:36 > 0:25:43as a tax avoidance vehicle?
0:25:43 > 0:25:45We never used any company as a tax avoidance vehicle.
0:25:45 > 0:25:48What was the Isle of Man ExecuJet company for, then,
0:25:48 > 0:25:51if not for avoiding tax?
0:25:51 > 0:25:57Well, then you'll have to educate yourself.
0:25:57 > 0:25:59So, ExecuJet asked Appleby to set up effectively a shell
0:25:59 > 0:26:02company in the Isle of Man so that the company would not be
0:26:02 > 0:26:04liable for Swiss aviation tax.
0:26:04 > 0:26:10Is that not case, Mr Desmond?
0:26:10 > 0:26:15You're incorrect.
0:26:15 > 0:26:17Could you put me right, then?
0:26:17 > 0:26:22I'm not duty-bound to educate you in how we run our affairs.
0:26:22 > 0:26:25We have written several letters to you to try and get clarity
0:26:25 > 0:26:27on what the situation is, and what it looks as if,
0:26:27 > 0:26:31as it looks like, the Isle of Man ExecuJet company was a tax
0:26:31 > 0:26:32avoidance vehicle, which allowed ExecuJet to avoid more
0:26:32 > 0:26:37than $1 million in tax over three years.
0:26:37 > 0:26:39That is absolutely wrong.
0:26:39 > 0:26:42But maybe you could tell us, what was the Isle of Man company
0:26:42 > 0:26:46for if not to avoid tax, Mr Desmond?
0:26:46 > 0:26:48That is exactly, that is our own business.
0:26:48 > 0:26:53Every company in the Isle of Man is not for avoidance of tax.
0:26:53 > 0:26:54OK, one final question.
0:26:54 > 0:27:01Did ExecuJet Isle of Man help ExecuJet avoid tax?
0:27:01 > 0:27:02Absolutely not.
0:27:02 > 0:27:05OK, Mr Desmond, thanks very much for your time.
0:27:05 > 0:27:08Mr Desmond wasn't prepared to give too much detail
0:27:08 > 0:27:11about the Isle of Man company, but what he did say was that it
0:27:11 > 0:27:13was not a tax avoidance vehicle.
0:27:13 > 0:27:16But I'm afraid, in terms of what the Isle of Man company
0:27:16 > 0:27:21was for, I'm none the wiser.
0:27:21 > 0:27:24The next day, Mr Desmond wrote me a letter.
0:27:24 > 0:27:27"Dear Mr Daly, are you a Rangers supporter?!"
0:27:27 > 0:27:32He went on: "During my period of majority ownership,
0:27:32 > 0:27:35ExecuJet was tax and regulatory compliant in all the various
0:27:35 > 0:27:39jurisdictions it operated in, nor was it under any investigation.
0:27:39 > 0:27:42There are good operational reasons for having a presence in the Isle
0:27:42 > 0:27:45of Man, and many international companies do so".
0:27:45 > 0:27:47Appleby told the BBC it had "thoroughly and vigorously"
0:27:47 > 0:27:53investigated the allegations, and they were "satisified that there
0:27:53 > 0:27:55is no evidence of any wrongdoing", either on the part of "ourselves
0:27:55 > 0:28:02or our clients".
0:28:02 > 0:28:04The Paradise Papers have given us an insight into the secret world
0:28:04 > 0:28:10of the rich and powerful.
0:28:10 > 0:28:15And we've learned many of them do not appreciate the scrutiny.
0:28:15 > 0:28:17Tax loopholes will close, and regulations will tighten.
0:28:17 > 0:28:24But firms like Appleby are paid million to find the gaps.
0:28:24 > 0:28:26The impact of this story is being felt across the globe.
0:28:26 > 0:28:31But the offshore world continues to turn, and much of what goes
0:28:31 > 0:28:32on remains shrouded in secrecy.
0:28:32 > 0:28:42Until, perhaps, the next big leak.