37 replies to this topic

[mariner]

Tax evasion ( illegal) and avoidance ( legal etc. ) have become hot topics globally in recent months. Such obscurities of tax practice as Sub part F and thin capitalisation ar now the basis of daily media items.

It started me thinking about the possible role of racing teams in tax evasion. Often rumoured or implied but have any teams or owners actually been brough to trial and convicted?

In theory its easy to use a racing team to evade tax. Privately owned company A in country B signs $10M sponsorship deal with team C in country D. The whole $10m is sent by company A to team B. However the principals of team B have agreed to divert a portion to a secret bank account in, say, Switzerland, owned by the owners of company A

I'm not sure it is that easy in practice. The company A has to show the sponsorship has some direct relavence to generating sales or it will get disallowed 100%. The owner of the team must either syphon of some of the sponsorship money before it gets into the teams books ( in which case income won't match the sponsorship contract) or transfer funds out of the team to Switzerland etc. It's the team who risk a paper trail exposing them so they may want a personal commission.

Financially to make it worthwhile the percentage syphoned off has to exceed the owners tax rate ( corporate and pesonal) plus any team comissions.

So, Im not sure if it has ever actually happened but are there any recorded cases out there ?

[kayemod]

So, Im not sure if it has ever actually happened but are there any recorded cases out there ?

The Great Man is dead now, so no harm talking about it, but there were some decidedly dodgy sponsorship dealings at Lotus when I was there in the 70s. Team Lotus channeled funds through a Geneva-registered company called GP Developments, and they used the same route to 'lose' some of the DeLorean money. It wasn't my department and I never knew the full details, but it wasn't all that well hidden either, all fairly common knowledge among Lotus employees at the time. It's always been a surprise to me that so little of this seems to have been uncovered, there have been one or two TV programmes about Chapman and DeLorean etc, but they barely scratched the surface. Mike Lawrence's Flawed Genius book uncovered some of the truth, but he seemed to lose interest before the end, so the story is incomplete. It's probable that quite a lot of dodgy dealings went on back then, and probably ever since as well. He was no engineer, but to name but one, Max Mosley was no fool when it came to this aspect of 'The Sport', so the dealings of the long defunct March outfit, again as written about by Mike Lawrence, might be worth scrutinising. Bernie has always seemed too clever to get caught, at least up to now, but I'd be surprised if he didn't have the odd finger in Brabham's till as well.

[Ray Bell]

Importing racing cars into Australia was an expensive business...

Between sales tax and customs duty the price would be jacked up by around 85%. Parts, too.

So, as is well known, Aussie Miller and Ern Tadgell, after buying a Lotus 12 and a Cooper in England brought them to Australia as 'cropduster parts' or somesuch. Agricultural machinery didn't attract those high tax rates and so we had the 'Miller Special' and the 'Sabakat' turn up on our circuits.

[David McKinney]

More than one racing-car was declared to New Zealand Customs as "agricultural machinery" too

[Ray Bell]

The sale of the Ferrari 250LM to Andy Buchanan has all the hallmarks of a customs dodge as well...

Vehicles brought into the country for 'demonstration purposes' or something like that were allowed some length of stay, presumably with a bond lodged, each time they went out of the country they got older and less valuable and so the amount of duty payable was reduced.

[ensign14]

More than one racing-car was declared to New Zealand Customs as "agricultural machinery" too

I can think of some cars for which that description would be apt.

[Catalina Park]

I know someone that used to turn most of his race car running expenses into truck parts for tax reasons...

[BRG]

Let's see. Ferrari are an Italian company so obviously won;t have ever paid any tax. Mos tof the rest are running at a loss so are probably getting tax rebates. That leaves Red Bull and McLaren. Anyone care to guess whether either of them employ clever accountants in the same way as Google, Amazon, Starbucks, News International etc.

Frankly, as far as UK tax is concerned, the tax authorities are so weak and incompetent that any corporation that pays tax is nuts.

[kayemod]

That leaves Red Bull and McLaren. Anyone care to guess whether either of them employ clever accountants in the same way as Google, Amazon, Starbucks, News International etc.

Well, just one example, McLaren's accountants managed to convince the UK tax authorities that Mosley's iniquitous $100 million fine on them was allowable against tax, so it didn't cost them much in the end, I'd certainly call that clever.

[Allan Lupton]

Well, just one example, McLaren's accountants managed to convince the UK tax authorities that Mosley's iniquitous $100 million fine on them was allowable against tax, so it didn't cost them much in the end, I'd certainly call that clever.

If they needed to have it declared allowable as a business expence for tax purposes, that implies that tax is normally being paid, doesn't it? What's more if normal tax wasn't being paid, trying to offset a 100 megabuck fine might draw unwelcome attention.

Back to nostalgia, there were a number of cases where racing cars crossed borders on paperwork (and makers' plates) that properly belonged to other cars. Import duty evasion would have been but one of the reasons for doing that, however . . .
ref. "don't lift flat stones" by Jenkinson, D.S., VSCC 1967

[Ray Bell]

Rob Walker owned a car (a very long time ago) which had come into England full of contraband...

It's a story told in a book I read many years back, I'm not really sure if it was a racing car or was owned by a racing team.

[GMACKIE]

Not too sure about racing teams, however quite a few car dealers were caught up in the dreaded 'Bottom-of-the Harbour' tax dodge, here in Australia. A noted politician found himself in hot water when he named [outside parliament] a car dealer who was NOT involved in the scheme.

[Graham Gauld]

The sale of the Ferrari 250LM to Andy Buchanan has all the hallmarks of a customs dodge as well...

Vehicles brought into the country for 'demonstration purposes' or something like that were allowed some length of stay, presumably with a bond lodged, each time they went out of the country they got older and less valuable and so the amount of duty payable was reduced.

Many years ago Frank Kennington, a real larger than life character, told me that he never paid any tax on the Cisitalia D46 single seater he brought into Britain which was why he had to hustle it back out of the country at the end of the season.

Also John Gordon - of Gordon-Keeble fame - when serving in Italy immediately after the war found a Maserati and thanks to help from Paul Emery managed to get it into Britain with an interesting ruse. Another Maserat arrived in Britain in bits in the bomb bay of a Lancaster bomber shortly after the end of the war.

[john aston]

I recall that the late AG Dean esq had some ..err ..issues with imported cigars and HM Customs and Excise.You can get a lot of King Edwards in a F5000 car transporter. Allegedly. Well actually , not allegedly at all but actually as Tony served time for this crime of the century..not

[Derwent Motorsport]

Racing car transporters and more recently super bike transporters are ideal ways of moving items that should not be found around! They have so many boxes, cabinets, etc it would take a customers person days to go through.

[alansart]

I recall that the late AG Dean esq had some ..err ..issues with imported cigars and HM Customs and Excise.You can get a lot of King Edwards in a F5000 car transporter. Allegedly. Well actually , not allegedly at all but actually as Tony served time for this crime of the century..not

Weren't they hidden in an engine block or something similar?

I seem to remember somebody well known in Sports Cars in the late 60's, early 70's supplemented their income with wine distributed around cars after races in Portugal.

Edited by alansart, 23 July 2013 - 10:18.

[JtP1]

Weren't they hidden in an engine block or something similar?

Thought they were in the tank side pods, which would explain the mistake of running a starting money special.most observers wondered why he would go all the way to Monza and be lucky to complete a lap. I remember he was on bail and had to remain within 25m(?) of his house, so he got to race at Rufforth which was just inside the limit.

the one from the late 40s early 50s was Swiss watches wrapped in a condom and dropped in a Castrol R tin. The big square one with the cone neck. It was hard to see inside the tin. To recover the goods, you emptied the tin and left it upside down over a bucket and after quite a while the watches slid out.

[kayemod]

the one from the late 40s early 50s was Swiss watches wrapped in a condom and dropped in a Castrol R tin. The big square one with the cone neck. It was hard to see inside the tin. To recover the goods, you emptied the tin and left it upside down over a bucket and after quite a while the watches slid out.

If I'd had one of those watches, I'd be easy to track down, I'd be the bloke continually sniffing his wrist.

[Jagjon]

Rob Walker owned a car (a very long time ago) which had come into England full of contraband...

It's a story told in a book I read many years back, I'm not really sure if it was a racing car or was owned by a racing team.

The Delahaye he loaned a racing driver & it was impounded for having watches in the false fuel tank or some such story. Obviously he got the car back by some means.
I don't wish to name the driver but it shouldn't be too hard to figure who it might have been.

[Ray Bell]

Yes, watches in the fuel tank, that was it...

Strange to think it would have been worth trying.

[Tim Murray]

Here's the story as told by Doug in the Rob Walker thread:

Do you mean when Guy Jason Henry borrowed Rob's Delahaye 135 and had it impounded by HM Customs when they found its box-section mudguard farings packed with contraband - not with diamonds but watches????? GJH did porridge for that...and Rob had to buy his car back.

DCN

[mariner]

Its not tax evasion but it is tax avoidance when you charge all the cost of your racing venture to your business. In truth very few racers are "salarymen" so the total tax avoidance by racers globally is probably rather large.

IIRC several US basse teams like Chapparal eventually closed because the US IRS will only allow losses for about 7 years. They take the view that if you can't make it profitable by then you are too stupid to ever do so.

I wonder how many "sponsor" decals on club racing cars are just the guys own family business and each decal is saving lots of tax?

[alansart]

I wonder how many "sponsor" decals on club racing cars are just the guys own family business and each decal is saving lots of tax?

A very grey area. Well it was when I raced in the 80's and early 90's. I was advised by my accountant not to claim too much of my racing against Tax even though my racing generated a certain amount of business (I'm a Technical Illustrator and was a Motor Racing Artist at the time). The premise being that I was claiming Tax by enjoying myself and it wouldn't be worth the hassle if the good old Revenue decided to investigate me. Mind you it's amazing how many tyres I went through on my road car at the time (even though they didn't fit) and why I had to travel to customers that just happened to be at race circuits, so I might as well take my race car there as I was going etc....;)

Edited by alansart, 23 July 2013 - 14:27.

[kayemod]

A very grey area.

All very true, but it's only as grey as HMRC feel like allowing it to be, their powers are extensive, and they can do virtually what they like. My tax situation is very similar to alansart's, and my accountant's advice the same, essentially "Don't push your luck!" If you give them any reason to start querying items in your accounts, you'll bear the full cost of any investigation, and what's more serious, your file will be marked for evermore, they'll never leave you alone. The situation is the same with both personal tax and VAT, they're always looking for what they term "own use", putting non-business costs through the business. Like alansart though, I've had a few customers based not too far from Donington, Goodwood, Thruxton etc, and while I was passing...

[Vitesse2]

Not quite in Amazon's league, but Revealed - Formula One pays £1m corporation tax on £300m profit

[Johnbull]

There's a whole 2 pages about motorsport sponsorship and VAT in the European VAT manual.

My accountant found it recently, and we consult it regularly !

Basically it's amazing what you can pass off as advertising/publicity expences.

[Glengavel]

Not quite in Amazon's league, but Revealed - Formula One pays £1m corporation tax on £300m profit

Pfft. Amateurs. They should take a leaf from FIFA's book. One of the prerequisites for Brazil hosting the World Cup is that FIFA is not liable for tax in that country. Ker-ching!

Edited by Glengavel, 24 July 2013 - 06:15.

[DogEarred]

A very grey area. Well it was when I raced in the 80's and early 90's. I was advised by my accountant not to claim too much of my racing against Tax even though my racing generated a certain amount of business (I'm a Technical Illustrator and was a Motor Racing Artist at the time). The premise being that I was claiming Tax by enjoying myself and it wouldn't be worth the hassle if the good old Revenue decided to investigate me. Mind you it's amazing how many tyres I went through on my road car at the time (even though they didn't fit) and why I had to travel to customers that just happened to be at race circuits, so I might as well take my race car there as I was going etc....;)

How similar to 'someone I know', who used to hire out his race car once or twice a year as a business. He made a loss for the first 2 years before Max the Tax wrote to him saying they thought it wasn't a bona fide business, giving him the option of desisting or being investigated.
He desisted.

[DogEarred]

Back in the day, that's over 30 years ago, and I don't know if the same system still exists, there was a choice of 2 different document methods to take a racing car from the UK to race on the Continong.
Either London Chamber of Commerce or the RAC.
The former required the temporary export document to be stamped in & out of every border crossing, including the UK.
The RAC Carnet de Passage did not need stamping in or out of the UK for some unknown reason, only the foreign points.
This left the loophole open whereby a car could be stamped out of continental country (there were few physical checks) but there would be no record of the vehicle actually returning to the UK. One simply posted the Carnet back to the RAC.
Should the vehicle actually stay in that last country - well I can't image how that might help someone...

[mariner]

The Independent article is fairly typical of the headline hysteria generated by the current “tax evils" debate. Almost all racing (Bernie accepted) costs people money so you wouldn’t expect profits taxes to be paid. Much of UK F1 industry is subsidiaries of bigger overseas groups (Mercedes engines, Red Bull) so any profit/loss is an artifice to some extent.

The lack of tax paid by Bernie is a function of the CVC buy out having a typical private equity (PE) structure. You pay lots of cash to the owners of a very profitable company, then you load up said company with as much debt as the banks and tax authorities will allow so as to send most, or all, the cash just paid out by the PE company straight back again to clear its books. Then the target has low net profit until the debt is repaid, after which it becomes very profitable again and can be stock market floated to cash in. That’s what CVC seem to be doing with F1.

The subject of sportsmen/women personal tax is also rather interesting. Forget Brazil, Usian Bolt et al only agreed to come to the World Championships in the UK after the Uk gov't agreed they wouldn't pay much tax on their earnings at the event. That's the same government who in the same week was promising to crack down on evil overseas companies that didn’t pay UK tax!

IIRC in contrast the US IRS almost caused the Detroit GP t be cancelled in the 1980’s when they told the drivers they would pay tax on their USGP related earnings. What they meant was that under US tax rules global income is always assessed so the IRS would add up all the overseas team payments and sponsorship earnings , divide by the number of GP's that year and send the drivers a tax bill on the US proportion. The drivers didn’t like that one little bit if I remember correctly.

[ensign14]

One reason why Reventlow wound up Scarab was to do with US tax law - he could write off the costs of the team against tax if it failed within 5 years of incorporation. Even though they'd built a rear-engined car, they didn't continue with the F1 project as a result.

[D-Type]

One reason why Reventlow wound up Scarab was to do with US tax law - he could write off the costs of the team against tax if it failed within 5 years of incorporation. Even though they'd built a rear-engined car, they didn't continue with the F1 project as a result.

Wasn't the situation with Cunningham cars somewhat similar?

[Andy Somerton]

Some years ago I was told of a team owner importing his race engines as engines for his plant hire company equipment

[scheivlak]

Forget Brazil, Usian Bolt et al only agreed to come to the World Championships in the UK after the Uk gov't agreed they wouldn't pay much tax on their earnings at the event.

There haven't been any World Championships in athletics in the UK so far

[alansart]

The RAC Carnet de Passage did not need stamping in or out of the UK for some unknown reason, only the foreign points.
This left the loophole open whereby a car could be stamped out of continental country (there were few physical checks) but there would be no record of the vehicle actually returning to the UK. One simply posted the Carnet back to the RAC.
Should the vehicle actually stay in that last country - well I can't image how that might help someone...

I think it was Willie Moore who did a Euro Formula Ford round at the full Nurburging in the early 80's. Willie actually got the lap record but totalled the car on the next lap.

Coming back through Dover, Customs decided to check the transporter.

"Do the contents match the Carnet"

"Umm...yes and no"

"What do you mean...yes and now"

Transporter doors opened to reveal an RP26 in about a thousand bits!

"OK.. on your way!"

[redreni]

The Independent article is fairly typical of the headline hysteria generated by the current “tax evils" debate. Almost all racing (Bernie accepted) costs people money so you wouldn’t expect profits taxes to be paid. Much of UK F1 industry is subsidiaries of bigger overseas groups (Mercedes engines, Red Bull) so any profit/loss is an artifice to some extent.

The lack of tax paid by Bernie is a function of the CVC buy out having a typical private equity (PE) structure. You pay lots of cash to the owners of a very profitable company, then you load up said company with as much debt as the banks and tax authorities will allow so as to send most, or all, the cash just paid out by the PE company straight back again to clear its books. Then the target has low net profit until the debt is repaid, after which it becomes very profitable again and can be stock market floated to cash in. That’s what CVC seem to be doing with F1.

The subject of sportsmen/women personal tax is also rather interesting. Forget Brazil, Usian Bolt et al only agreed to come to the World Championships in the UK after the Uk gov't agreed they wouldn't pay much tax on their earnings at the event. That's the same government who in the same week was promising to crack down on evil overseas companies that didn’t pay UK tax!

IIRC in contrast the US IRS almost caused the Detroit GP t be cancelled in the 1980’s when they told the drivers they would pay tax on their USGP related earnings. What they meant was that under US tax rules global income is always assessed so the IRS would add up all the overseas team payments and sponsorship earnings , divide by the number of GP's that year and send the drivers a tax bill on the US proportion. The drivers didn’t like that one little bit if I remember correctly.

That's precisely what much of the "hysteria" is about because it is, of course, deeply unfair for the owners of these subsidiaries to be able to pick and choose where to pay tax on profits generated in the UK. If I work for an organisation with operations in other countries, but I do my work here, I cannot choose to pay income tax on my wages in whichever country happens to have the lightest personal income tax regime. There is no principled reason why it should be any different for a small UK-based subsidiary of a multinational car giant. I don't think the objections to this are particularly hysterical, I think they're largely rational. Allowing the biggest corporate taxpayers to choose in which tax regime to pay tax on their profits clearly fetters the ability of each country to make independent, democratic decisions on taxation, because if their rates are uncompetitve then the biggest players won't pay. This is not an issue that's the least bit unique to the motorsport industry, though.

[Peter Horsman]

So where should a coffee group, which has a company which grows coffee beans in South America (but sells no coffee there), sells them to a group company which buys in vast bulk (and therefore cheaper per bean) and treats the beans and then distributes/sells the treated beans at a profit to smaller group companies in each country to make and sell the coffee, actually pay tax on its profit?

One country; two or all three? And how much where?

And what if that coffee group started in the US and spent considerable sums of money in the US creating a worldwide brand (such is the way of the world!) such that the brand actually adds value? Should the US benefit by way of royalty payments from the extra profit that brand generates by its use in the UK (which would reduce the profit in the UK)?

Way off topic. but it does rather seem to me that,

1. Politicians are elected by the electorate to write the laws but they tend to tie their own hands behind their backs out of wider political expediencies (eg, the EU), and
2. A politician's view of morality only works one way to increase local taxes payable, and HMRC's practice is apply the very letter of the law even when it results (in the words of judges in quite a number of recent tax cases) in an immoral and plainly unfair outcome to the taxpayer.
3. If I wanted a lesson in morality, I don't think I would go to the UK House of Commons to receive one.

Sorry about that. End of rant.

[Lee Nicolle]

In theory it should be simple but seldom is. For big time motorsport the tax implications can get very confusing very quickly. And ofcourse the sponsors money often does not go direct to the team, a few agents all receive a bit too. Legit. Then sometimes someone from the sponsor seems to pocket a backhander too. Not legit. though sometimes legal.
The theory is that the race team is not for profit, the sponsors and some outside work pays for the team to race cars. The sponsor writes off the money on tax. Legitimate. The race team does not earn enough money to pay tax apart from the inevitable sales tax and wages tax [And GST if applicable] So when the government take it into their head that they should pay tax it gets silly. They are still generating tax even with no income tax.
As someone said Ferrari probably never pays tax.

An international circus such as F1 then has all the hassle of different tax rules in every country. The cars staying a customs lockdown is the smallest part though at one time all the teams sold spare bits, lifed components, damaged parts for memorabilia and the like. And no one pays tax on that stuff, and the customs seem not to see.

Many local teams used to buy used gear sets, crown and pinion, rodends, CVs and the like that had been lifed but were still serviceable. Probably still happens though some of the components are so specialised maybe not.

Nascar is the same, I have bought many used parts from the US that are ex Nascar. Though more and more stuff does not interchange with anything else now!

As others have said in the past many cars were quite illegitimate, the same carnet used for 2 0r 3 cars. Cars imported as machinery or cropduster parts. I can remember in the 70s people advertising speedway cars and road race cars that were 'duty paid' Quite a few it appears were not. The same with engines. Though really tax rules were a bit silly as this specialised stuff was not made here and was hardly being used on public roads. I know of one early sprintcar chassis that was dumped at sea. No duty paid. Though it was very bent by that time anyway. Though most of the running gear was around for a long time afterwards.