The leak of financial documents – known as the Paradise Papers – has thrust the Isle of Man into the spotlight over its alleged role in helping customers avoid paying duty (VAT) on business aircraft imported into the EU via the British Crown Dependency.

Material about the subject has come from two offshore service providers, Appleby and EY, and the company registries of 19 tax havens. It was obtained by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists, which has partners including the BBC, The Guardian and New York Times newspapers.

The Paradise Papers investigation reveals the Isle of Man government approved tax avoidance schemes that allowed business aircraft owners, including Formula 1 racing driver Lewis Hamilton, to claim 100% VAT refunds on the grounds that their aircraft were part of leasing businesses. The nearly 7 million papers leaked from Appleby show that this sometimes involved owners leasing their own aircraft from themselves. The Guardian says experts who have reviewed these structures suggest they could be challenged as abuses of tax law – and in some cases tax evasion, which is a crime.

The Isle of Man, located in the Irish Sea, operates one the world’s largest registers of privately-owned aircraft, and has produced nearly 1,000 M-prefixed jets, turboprops and helicopters since the registry was launched in 2007.

In the wake of the release of the Paradise Papers, the Isle of Man has called in the UK government to oversee a review of the refunds it has issued to more than 230 jet-leasing companies since 2011. None of these schemes paid VAT – set at 20% – and a total of £790 million ($1 billion) was refunded, according to The Guardian.

In a statement issued on 7 November, Isle of Man chief minister Howard Quayle said an internal review had found no evidence of wrongdoing, or any reason to believe that the customs and excise division has been involved in mistaken refunding of VAT. “If there is any evidence of wrongdoing then all appropriate action will be taken against individuals or companies,” he says.

Quayle calls the VAT treatment of aircraft imported into the EU "a highly technical and complex area", in which the Isle of Man follows the same policy, laws and rules as the UK. "We acted swiftly and decisively and have taken action to demonstrate that the Isle of Man is a well-regulated, open and transparent member of the international community," he says.

Source: Flight International