Scotland's Paradise Papers

Crikey, she sounds pretty stressed.

Where exactly are you?!

This is a story about money,

and how the rich and powerful

try to hide it from the taxman.

It's the big guys who

are using their power,

their strength and their monetary

advantage in order

to game the system.

There do seem to be different

rules for billionaires.

In one of the biggest offshore

data leaks in history,

we learn how corporate giants

shift their profits

and avoid the taxman thanks

to the world's tax havens.

The trouble with this stuff

isn't that it's illegal.

The trouble is that it's legal.

If these companies are not

paying their fair share of taxes,

it means you and I are paying more.

It's as simple as that.

It's a story about how big

business and billionaires

use an elite law firm,

operating in tax havens right

on Britain's doorstep.

It looks like the Isle

of Man ExecuJet company

was a tax avoidance vehicle,

which allowed ExecuJet to avoid

more than $1 million

in tax over three years.

That is absolutely wrong.

These are Scotland's

Paradise Papers.

You've been hearing

about a leak ? it's a big one.

It's from inside Appleby,

a law firm with offices

in every major tax haven.

More than 13 million Appleby

documents were obtained by German

newspaper Suddeutsche Zeitung,

who shared them with

the International Consortium

of Investigative Journalists.

The ICIJ has been coordinating

a global investigation,

which includes BBC Panorama

and the Guardian newspaper,

and involves more than 350

journalists in over 100 countries.

These are documents that

should never have seen

the light of day, basically.

Every person who pays taxes should

care about what we're seeing here.

We are looking at a firm called

Appleby,.

We are looking at a firm

called Appleby,.

Appleby, which is the principal

focus of this investigation,

they're part of what they call

the magic circle of offshore law

firms - in other words,

the elite of the elite,

and their clients are also

the elite of the elite.

And there are some big names.

Lewis Hamilton's tax

dodge on his private jet.

Cast members of Mrs Brown's Boys'

offshore tax-avoidance scheme.

And the inner circles of the most

powerful men in the world.

You can't dismiss this

as just a few bad guys.

This is a whole system used

by the most powerful

and the wealthiest, the biggest

corporations - exposed.

BBC Scotland's investigations team

is the only Scottish media partner

with access to the leak,

and has been working

inside the Paradise Papers

for the past six months.

There are thousands

of documents relating to Scots

businesses and people -

some of them you'll have heard of,

and some you won't.

But they've all got one thing

in common ? avoiding tax.

Blackstone - not a household name,

but a global private equity giant

managing over $350 billion

worth of assets.

It's founder and chief executive

is Stephen Schwarzman,

a close confidant of President

Trump.

And his company has a major

interest in Scotland.

St Enoch Centre in Glasgow.

One of the most recognisable

buildings in the country.

It was bought by Blackstone

in 2013 for £190 million.

Blackstone is one of Appleby's

biggest customers, and the law firm

was integrally involved

in the purchase of St Enoch.

The Paradise Papers lay bare

the lengths Blackstone,

one of the biggest, richest

companies in the world,

went to to avoid paying UK taxes.

The data reveals the confidential

reports by one of the UK's

biggest accountancy firms,

Deloitte.

Under the codename Project Genesis,

they provide a step-by-step guide,

tailor-made to help Blackstone avoid

tax at every stage of

the purchase of St Enoch.

It starts with a deft

swerve of £7.6 million

in stamp duty land tax,

made by possible by owning

the shopping centre through a Jersey

property Trust, or JPUT.

Jersey is a Crown Dependency -

which means it's independent,

but ultimately the UK

is responsible.

And, like several of the UK's

Overseas Territories,

it's a tax haven.

Jersey specialises in Trusts,

and there are thousands

of them based here.

One of the many main

benefits to holding, say,

property in a Trust is privacy -

it's completely hidden

from the public.

But the other main attraction

is that it helps companies avoid

paying British taxes.

This Trust we're interested in is

operated by something the called

St Enoch Centre Trustee Company

Limited.

Its registered address is here,

at Appleby's Jersey office.

Its directors are Appleby staff.

It's a brass plate company,

which means a company with no

obvious economic relationship

to a shopping centre in Glasgow.

What did the islands' leading

politician think about companies

using Jersey to avoid the UK taxman?

If there are concerns

in the United Kingdom about how

people are structuring

their investments into

the United Kingdom...

If there are concerns there,

then the United Kingdom Government

should change its tax code

to deal with them.

Some organisations use Jersey

as part of a complicated

ownership structure.

Some might say that the way

that the way Jersey Trusts

operate isn't transparent.

The United Kingdom Government

and their competent authorities can

request information about what's

happening in Jersey wherever

they might have a concern,

and we're at the stage now

where that information can be

exchanged in as little as an hour.

We asked George Turner,

tax researcher and campaigner,

to look into this structure for us.

What you have here at

the St Enoch Centre to all intents

and purposes is an economic fiction.

The property is owned

by a Trust in Jersey.

So when the original owners sold

the property to Blackstone,

they weren't selling

the property itself.

They were selling an interest

in the Trust that own the property,

and because that Trust is owned

offshore, they can avoid stamp duty.

So that's £7 million

or £8 million saved right away.

Saved, or taken.

The Jersey Trust is owned

by a series of Blackstone

Luxembourg companies.

Despite having a major base

in London, Blackstone has been given

non-resident landlord status

by HMRC, meaning they can collect

rental income on the property

tax-free and send it to Luxembourg.

The data suggests that

could be £10 million a year,

but they should pay corporation

income tax on that in Luxembourg.

But do they?

So what appears to be

happening is that the rental

income which is coming in,

the companies that are receiving

that are then borrowing huge amounts

of money from other companies

which are part of

the Blackstone Group.

Now, when they borrow that money,

they need to pay interest on it,

and those interest payments destroy

any profitability

in those companies.

And the end result is no tax is due?

Because they're borrowing

money from themselves,

they can claim a tax

deduction on that.

According to registry documents,

the Luxembourg companies

in the St Enoch structure paid just

a few thousand pounds

a year in taxes.

And, guess what?

If Blackstone sells the place on,

the Jersey Trust structure

will allow them to avoid capital

gains tax, too ? which could run

into tens of millions.

It seems like a complete charade.

A Glasgow shopping centre

generating cash in rental

income here in Scotland,

but that cash flows tax-free out

of Scotland and over

to Luxembourg via the tax haven

where the St Enoch Centre

is effectively owned in Jersey.

Deloitte, the architects of

the structure, declined to comment.

It's not the first time

Blackstone used these methods.

This is Chiswick Park ? a business

centre in West London.

Blackstone bought it in 2011 -

and in tax advice, this time

from accountancy firm PwC.

And there was no messing about.

It states the proposed tax

structure was designed:

To mitigate, where possible,

taxes on acquisition.

To minimise ongoing income,

corporate, withholding

and other taxes in UK,

Jersey and Luxembourg.

To minimise tax on exit from a UK,

Jersey and Luxembourg perspective.

The language is quite shocking,

because it's so blatant

what the intention is.

Blackstone sold Chiswick Park

to the Chinese government

in 2014 for a £300 million.

So it would appear Blackstone

followed the PwC advice

to the letter, and paid no stamp

duty, paid next to no

income tax on the millions

of pounds of rental income,

and no capital gains

on the disposal.

Not a bad bit of business.

PwC told the BBC...

"The advice we provide

is given in accordance

In a statement, Blackstone said:

"Blackstone's investments are wholly

compliant with UK and international

tax laws and regulations".

The properties were acquired

by "Institutional investors,

and are of a type commonly used

for decades for investments

in UK real estate."

And were "Adopted after appropriate

advice was taken from leading tax

and legal advisors".

So, whilst Blackstone was

the beneficiary of the structure,

it was Appleby who implemented it.

And that's what they do.

They'll create companies

for you in tax havens,

even provide the directors.

There are thousands of examples

of this in data, and some

specifically involves one

of Scotland's biggest industries -

Ithaca Energy, a Canadian company

with its headquarters in Aberdeen.

In 2012, they were in the process

of buying a share in this.

FPF-1 is a floating

oil production vessel.

The company agreed a deal

for £18 million to buy half

of FPF-1 and share it

with two other companies.

But just days before

the transaction, they decide

they need a shell company

in a tax haven.

Why would a Canadian company

with its headquarters in Aberdeen

need a Bermudan company

to own its stake in an oil vessel

working in the North Sea?

The Paradise Papers

could have the answer.

Ithaca's Aberdeen office tells

Appleby: "It is important

for our tax position

that the company is managed

and controlled from Bermuda".

Seems clear enough.

Ithaca need the company to operate

properly, for tax reasons.

Appleby agree to provide

a local director.

There're reasons to head to Bermuda

other than its sun-kissed beaches -

mainly the island's

generous tax laws.

There are no taxes

on profits or income.

But does the company have any real

business in Bermuda?

Or is it just a show

for tax purposes?

Take this minute of a company board

meeting in June 2012.

It says two Ithaca executives called

in from Canada and the UK,

and Appleby's Bermudian director

fails to attend.

An Ithaca board meeting in Bermuda,

with apparently no-one in Bermuda.

We asked an international tax

expert for his opinion.

I think the reality of the matter

is this whole show was being run

from Aberdeen, not from Bermuda.

The only reason to have a Bermudan

company in there is because

Bermuda's a tax haven,

and they can get interest into it

without paying taxes,

and whenever the Canadian company

wants to withdraw the money

they can withdraw the money

without paying any taxes.

I can't see any other reason

to have this extra holding

company in the structure.

FPF-1 only started producing

oil this year - and,

because of tax breaks,

won't pay UK tax until 2020 anyway.

So what's the point?

I think the point

is looking forward.

You want to plan ahead

when you do these things,

because doing it when you actually

are profitable is harder.

For a few weeks, we've been trying

to get some answers from Ithaca

about just what exactly the purpose

of this Bermudan company was.

They say it's got

nothing to do with tax.

Our evidence suggests otherwise.

I'm going to go and knock

on their door and see

if someone will talk to us.

Hello.

Hello.

Mark Daly, BBC

Scotland.

How are you?

Very well.

We're just trying to find

out what the purpose

of the Bermudan company is?

The Bermudan company exists to hold

an asset that we have a share of.

Why hold it in Bermuda?

It's convenient for future

deals that we may do.

It's a complex business.

Is it a real company,

the Bermudan company?

Absolutely.

Because nothing really

happens there, does it?

I mean, you have board meetings.

You've even had board

meetings where nobody's

been physically present,

and people have been

calling in from abroad.

That would suggest, would it not,

that the company's being

managed and controlled

from outside of Bermuda?

Mark, Mark, you're concocting

a story, and frankly

part of the reason that

to have approached this

with a story in mind,

and I don't think it's helpful

to create a story based

on partial information.

Maybe you could give us

the full picture, then?

Now, the information that we have

suggests very strongly

that the Bermudan company

was created for tax purposes.

No, no that's not true.

I think we've said very clearly

that that's not true.

Now, you can choose to believe

us, or not believe,

us, that's up to you.

Have a good day.

All the best, thank

you very much for speaking to us.

In a statement, Appleby

said it works in "highly

regulated jurisdictions",

and advises clients

on "legitimate and lawful ways"

to conduct their business.

Within the millions of documents

in this leak, we can see it's not

just corporate giants who have used

Appleby to try to

help them avoid tax.

Our data reveals even

middle-sized property developers

were getting in on the act.

This is Logie Green

Road in Edinburgh.

In 2009, a number of addresses

on this street were sold

for millions of pounds.

The deal involved a group

of investors who included

Chris Stewart and Alex Watts.

The deal was done for a very

healthy profit indeed.

The data shows more than £5

million profit was made.

£750,000 due to Stewart

and £1.3 million to Watts.

The data suggests they tried

to take their cut offshore

to the Isle of Man, where Appleby,

who were then called

Dickinson Cruickshank,

created a land Trust called

the Palmerston Partnership.

An internal Appleby memo sets out

the purpose of the scheme: "A UK

property development in Scotland

utilising a Land Trust Partnership

structure to mitigate any tax due".

"Profits from the sale

have been distributed

amongst the partnership".

And here's how it worked

for the Edinburgh pair.

An Isle of Man vehicle

called the Palmerston

Partnership was created.

Two offshore Trusts

were also created -

one for Stewart, one for Watts.

The profits from the Logie Green

land deal flowed into

the partnership in the Isle of Man.

From there, Stewart and Watts' cuts

were moved into their Trusts, of

which they were the beneficiaries.

And it gets even more complicated.

Appleby set up two companies

to act as Trustees, called

Muttermore and Cuttermore.

These were supposedly independent

of Stewart and Watts.

Appleby staff then sign off

on a series of loans to companies

registered in Scotland,

which were controlled

by Stewart and Watts.

So what does all that mean?

I needed an expert,

and Philip Simpson is one

of the country's leading tax QCs.

The structure is well-known as a tax

avoidance structure.

Certainly the documents I've seen

strongly suggest the motive

for using it was to avoid UK tax.

So it's difficult to come

to any other conclusion

than that the purpose

of it was avoiding UK tax

in a fairly aggressive manner.

But in 2012, HMRC came calling.

A deeply unhappy Mr Watts wrote

to Appleby expressing concern over

the way the structure had been

managed, which could "weaken any

position with HMRC",

which he said would be "looking

to attack wherever they can".

Seemingly worried HMRC

will see through the scheme,

Mr Watts writes: "If as a layman

I am picking these up,

what am I missing?

That experts at HMRC will not".

In layman's terms, the taxman

caught up with them.

That's what it looks like.

If one might put it in a colloquial

manner, then yes, one

might put it like that.

Appleby documents suggest the pair

had, at least initially,

avoided more than £1 million in tax

from the profits.

So I had a few

questions for Mr Watts.

Mr Watts, Mr Watts.

Hi there, Mark Daly, BBC Scotland.

I've just got a few questions

for you, would you mind?

I would mind, actually.

Would you?

I'd just like to ask

you about your offshore Trust.

We have written to you to ask a few

questions about your Trust.

And we've written back,

so I think we've been fairly

reasonable with you,

and we've written back to you.

I think what you're doing is really

pretty unethical, actually,

from journalistic guidelines so I'd

rather just leave it there.

Well, the thing is,

you haven't actually

answered our questions,

which is why we're

here this morning.

Well, you know...

On the profits of the

Palmerston Partnership,

£1.3 million was your share.

How much tax on that did you pay?

OK, I'm not going to answer.

You've written to us,

and we've responded

to you professionally and properly.

What you're doing here...

Mr Watts' spokesperson told us

he was a "positive tax

contributor" who had always

lodged his tax returns.

He added that "following legislative

changes", Mr Watts entered

into "open and cooperative

discussion with HMRC" to establish

any potential tax due

on a "retrospective basis".

Mr Stewart's spokesperson

told us that "all tax

has been paid in full",

and any "retrospective tax payments

paid" ahead of "timescales

discussed with HMRC".

She added that there

was "no case to answer",

that HMRC was "in possession

of all relevant facts" and that "no

tax is owed to HMRC".

The key to the Palmerston

Partnership was the Isle of Man.

Stories about the island

come up again and again

in the Paradise Papers.

I'm here to investigate one

of them ? it involves

a billionaire and private jets.

The aviation business is clearly

a big part of what Appleby

does on the Isle of Man.

The trouble with this stuff

isn't that it's illegal.

The trouble is that it's legal,

but it's only available to people

with enough money to pay the right

lawyers and accountants

to do it for them.

One day, in June 2012,

there was much excitement

in the office behind me.

Appleby had been contacted by a very

exclusive private jet company

from Switzerland, called ExecuJet.

Could you set up an Isle of Man

company for us, Appleby were asked.

Yes, we could, Appleby said.

Could you provide some

directors for us?

Yes, we could, Appleby said.

And can you do it today?

We'll try our very

best, Appleby said.

The firm even waives some

of its usual background checks

to guarantee it closes the deal.

Perhaps because the owner

of ExecuJet is one of

the richest men in the world -

Dermot Desmond, best known

here as the largest single

shareholder of Scotland's biggest

football team, and with an estimated

fortune of around £2 billion.

He's familiar with offshore ?

his 35% share of Celtic

is held by in Gibraltar.

He's also no stranger

to controversy.

Matt Cooper, sued by Mr Desmond in

2011, has written extensively him.

Dermot Desmond came to prominence

during the 1980s in Ireland,

and he was regarded as a somewhat

brash, somewhat flash figure.

You don't become a billionaire

unless you are absolutely aggressive

in making sure that you make as much

profit as you can from your

businesses and that you keep as much

of that profit for yourself.

Mr Desmond's luxury jet firm had

offices all over the world.

So why did they need Appleby to make

them an Isle of Man company?

This internal Appleby memo states

ExecuJet has taken Swiss tax

guidance and found out that

having their Swiss headquarters

as the main company

on their insurance policy "has

a negative tax consequence",

as they would need to pay a 5%

levy under Swiss law.

"ExecuJet would like to set up

a company in the Isle of Man,

namely ExecuJet Limited,

to be the primary insured

under the policy".

So by switching to a brass plate

company set up by Appleby,

ExecuJet swerves up to $200,000

a year in Swiss taxes,

just like that.

But that's not all.

ExecuJet also receives

a brokerage fee back

from its insurers every year -

but this is classed as income,

and should be taxed in Switzerland.

Appleby can see to that, too.

In another memo, Appleby write:

"This is a low-risk structure that

has been set up to receive monies

due to EAG under the insurance

policies on the group aircraft.

By having the monies paid

into the Isle of Man entity,

EAG are not required to pay Swiss

tax on the income of around 22%.

We expect to receive two payments

per year of approximately

US$600k under this policy".

For ExecuJet to get the tax benefits

of being based in the Isle of Man,

it has to be managed

and controlled from there.

But the only employees

there are the directors

Appleby provided for them.

And it seems Switzerland

was calling the shots.

This email from head office clearly

instructs Appleby to transfer more

than $500,000 to the ExecuJet

group's bank account in Switzerland.

My understanding, having

read the legislation,

is that if individuals

in Switzerland are making

all decisions as regards

what the IOM companies does,

then, from a Swiss point of view,

the IOM company may be resident

in Switzerland for tax purposes.

And if it's resident in Switzerland,

then despite the structure that

has been put in place,

stamp duty is due on the insurance

premium paid, and Swiss corporation

is due on the money received back

from the insurance broker.

So the Swiss taxman might have

something to say about the up

to $1.3 million in tax that seems

to have been avoided

by Mr Desmond's company.

Would you say this was an aggressive

tax avoidance vehicle in operation?

It would certainly be reasonable

to describe this as aggressive,

given in particular what appears

to be a lack of economic

substance to the IOM company.

I hoped someone at ExecuJet Isle

of Man's registered office,

which is here at Appleby,

could help with some answers.

No joy.

So perhaps Mr Desmond himself

could provide some answers.

We knew there would be one

place his own jet would be flying

into on a Champions League evening,

so we tried to catch

up with him there.

Were you aware that, whilst

the company was under your control,

that ExecuJet was using a shell

company in the Isle of Man

as a tax avoidance vehicle?

We never used any company

as a tax avoidance vehicle.

What was the Isle of

Man ExecuJet company for, then,

if not for avoiding tax?

Well, then you'll have

to educate yourself.

So, ExecuJet asked Appleby to set

up effectively a shell

company in the Isle of Man

so that the company would not be

liable for Swiss aviation tax.

Is that not case, Mr Desmond?

You're incorrect.

Could you put me right, then?

I'm not duty-bound to educate

you in how we run our affairs.

We have written several letters

to you to try and get clarity

on what the situation is,

and what it looks as if,

as it looks like, the Isle

of Man ExecuJet company was a tax

avoidance vehicle, which allowed

ExecuJet to avoid more

than $1 million in tax

over three years.

That is absolutely wrong.

But maybe you could tell us,

what was the Isle of Man company

for if not to avoid tax,

Mr Desmond?

That is exactly, that

is our own business.

Every company in the Isle of Man

is not for avoidance of tax.

OK, one final question.

Did ExecuJet Isle of Man

help ExecuJet avoid tax?

Absolutely not.

OK, Mr Desmond, thanks

very much for your time.

Mr Desmond wasn't prepared

to give too much detail

about the Isle of Man company,

but what he did say was that it

was not a tax avoidance vehicle.

But I'm afraid, in terms

of what the Isle of Man company

was for, I'm none the wiser.

The next day, Mr Desmond

wrote me a letter.

"Dear Mr Daly, are you

a Rangers supporter?!"

He went on: "During my period

of majority ownership,

ExecuJet was tax and regulatory

compliant in all the various

jurisdictions it operated in,

nor was it under any investigation.

There are good operational reasons

for having a presence in the Isle

of Man, and many international

companies do so".

Appleby told the BBC it had

"thoroughly and vigorously"

investigated the allegations,

and they were "satisified that there

is no evidence of any wrongdoing",

either on the part of "ourselves

or our clients".

The Paradise Papers have given us

an insight into the secret world

of the rich and powerful.

And we've learned many of them

do not appreciate the scrutiny.

Tax loopholes will close,

and regulations will tighten.

But firms like Appleby

are paid million to find the gaps.

The impact of this story

is being felt across the globe.

But the offshore world continues

to turn, and much of what goes

on remains shrouded in secrecy.

Until, perhaps, the next big leak.