Wealthy people just like to randomly and gratuitously transfer funds to other wealthy people . . . it is like a whose the wealthiest competition
Just under a decade after Harry Redknapp was found innocent, payments to Ecclestone’s lawyer were generally found not to be gifts despite some dubious evidence to the contrary. The case illustrates the risks associated with excluding material facts from a Contractual Disclosure Facility (‘CDF’). The case is also a bloody great read surpassing any episode of East Enders.
In 2012, Harry Redknapp was found not guilty of tax evasion for ‘gifts’ made by Mr Mandaric. HMRC had contended that payments were in respect of player transactions: a bonus for selling Crouch. Mr Mandaric denied it was compensation and instead stated it was an investment for a ‘friend’. Anyway, an offshore bank account, Rosie 47 named after Harry’s dog, benefitted from the payments and Harry conveniently forgot about those funds.
Is it me or do those within the sports industry, maybe the performance industry and wealthy businessmen seem to give random amounts of cash to each other as a gift? A gift is generally something that is gratuitous, and the recipient would generally be emotionally affected by the gift – a pleasant surprise or something they could not have on their own account. Giving a wealthy man £1 to say thank you may not be received with gratitude by someone worth millions. Maybe this is why Harry forgot the gift paid into the offshore bank account named after his beloved dog, who I believe has subsequently died (the dog, not Harry, he is still going despite recent health scares).
Corruption in sports (and many other industries – is politics an industry?) is an issue. Some may recall that not long-ago FIFA officials were investigated over bribes which were allegedly hidden using shell companies. Bastian Obermayer and Frederik Obermaier, responsible for The Panama Papers, researched the information leaked from Mossack Fonseca and found several shell companies. They found contracts regarding Ecuadorian TV rights to the UEFA Champions League, which appeared to not be commercial i.e. rights bought cheap and sold for massive profit with alleged “incentive payments” to senior officials. Obermayer/Obermaier also suggested they had received information on the use by clubs and players of image right structures. The types of structures put in place sought to create a separate legal right for image, which could then be parked either directly or through an arrangement into an offshore structure. The income from the image rights would then flow to an offshore company. Some arrangements would permit access to that income through loans or other arrangements.
We also have the Blair’s offshore trust and the mysterious LLP structure, David Cameron’s father’s fund interest, Philip Green’s disposal of BHS, the sale of Rangers Football Club, and more recently Boris’ refurbishment expenditure.
HMRC had offered Ecclestone’s lawyer, Mullens, the Contractual Disclosure Facility (‘CDF’) and normally when material facts are omitted, HMRC look to prosecute.
HMRC had invited Mullens to enter a Contractual Disclosure Facility (‘CDF’) in June 2012. Mullens made an outline disclosure in September 2012. The completed outline disclosure stated that “As part of my Contractual Disclosure Facility undertaking, which I signed on 27/09/12, I admit that I have deliberately brought about a loss of tax through conduct which HMRC may suspect to be fraudulent”. Mullens was advised by BDO and Burton Copeland, a firm of solicitors specialising in criminal law.
The outline disclosure included interest that may have been taxable, omissions in relation to funds from a Lebanese company, gain on sale of shares, purchase and import of diamonds.
Mullens v Revenue and Customs  UKFTT 131 considered whether certain large payments made were taxable as income. Mullens was extensively engaged in the business affairs of the Ecclestone family and their interests. Mullens received several very substantial payments:
|Payment 1 - 1999/00||£1,200,000|
|Payment 2 - 2001/02||£750,000|
|Payment 3 - 2001/02||£300,000|
|Payment 4 - 2006/07||£21,500,000|
|Payment 5 - 2008/09||£10,015,005|
|Payment 6 - 2012/13||£5,000,000|
Mullens contended that none of the payments were taxable. He contended that payments 1, 2 and 3 arose from discussions between himself and an Ecclestone company, Bambino Holdings Ltd, to the effect that he would be paid £2.25m in order to induce him to resign his then partnership in a law firm so as to be able to offer his services uniquely to Formula 1.
Mullens contended payments 4, 5, 6, as well as the Holiday Payment, were gifts made by or at the direction of Mrs Slavica Ecclestone by reason of a “personal relationship of friendship and affection” between him and her. I am sat writing this and thinking what wealthy woman would want to build a unique bond with me, their tax adviser, and lavish me with some gratuity.
Mullens statement lacked factual detail. Mrs Ecclestone did not provide evidence neither did the Swiss lawyers involved.
Two documents were submitted in relation to Payment 4. The first document was a ‘deed of gift’ executed by Slavica Ecclestone and the second document was a letter confirming that the money transferred in April 2006 by the Trustees of the SLEC Trust at Slavica Ecclestone’s direction was by way of gift. The second document post dated the transfer by around a year. The FTT found the documents ‘curious’ and ‘odd’: Mullens did not tell HMRC anything about letters in October 2005 which had preceded Payment 4. There was also conflicting correspondence on 14 October 2005 in which Mullens was seeking a fee arrangement devising a structure which avoided $1.5bn of tax!
On 22 July 2013, Mr Mullens, through BDO, submitted a Disclosure Report addressing Payments 4, 5 and 6, and the Holiday Payment all described as “gifts made by Mrs Ecclestone to Mr Mullens”. That report, it was agreed with HMRC, was only to address the gifts made.
On 27 August 2014, Mr Mullens submitted a further Disclosure Report addressing all matters other than Payments 4, 5 and 6, and the Holiday Payment. On 14 October 2014, Mullens signed a certificate of full disclosure certifying the accuracy of schedules of bank accounts and other assets.
The FTT did not consider that Mullens had been open, honest or transparent. In the FTT’s view, Mullens falsely and misleadingly advanced the position that funds received from Mrs Ecclestone were a gift. The FTT considered that Mullens was deliberately concealing facts from HMRC. However, they did concede the holiday payment was a gift.
We wait to see if Mullens is prosecuted. The omission of material facts and given Mullens is a ‘professional’ adviser would normally be enough to whet HMRC’s prosecution appetite. As an aside, the case is also a reminder of how the uber rich operate. Clearly Harry received a gift and any suggestion that other persons mentioned in this article that others may have avoided a tax liability is unintentional. However, I can understand why mass marketed avoidance schemes to the blue-collar worker were appealing when to that audience, the wealthy may be perceived to avoid tax.