Pandora Papers: Five ways celebrities use the offshore system

Shakira did it. So did Ringo Starr, Claudia Schiffer, Julio Iglesias and cricket legend Sachin Tendulkar.

They have all set up companies “offshore”, in places like the British Virgin Islands, where tax rates are low or zero and where their businesses – and their identities – are hidden from the public.

And they’re among the celebrities, politicians and billionaires named in a trove of leaked files obtained by the International Consortium of Investigative Journalists (ICIJ). Those records are part of the Pandora Papers, an investigation of the offshore financial system that allows the rich and famous to buy yachts and private jets, invest in real estate and protect their families’ wealth while avoiding scrutiny.

Setting up companies and trusts offshore is easy and relatively cheap. A celebrity who lives in London or Los Angeles, for example, can hire a financial service provider in a “secrecy jurisdiction” to create and register a corporation.

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In addition to low or no tax rates, such jurisdictions have laws that shield the owners’ identities, making it difficult to determine why they are using their companies to hold assets .

Some of those jurisdictions are literally offshore – on islands, such as Anguilla or the Bahamas – while others are in landlocked places like South Dakota and Switzerland.

In most countries, individuals and businesses can set up companies in tax and secrecy havens. But they may still be required to disclose those companies – and pay taxes on them – in their home countries.

Leaked records show that, for as little as a few hundred dollars, celebrities and other wealthy people have opened companies offshore and, in some cases, saved hundreds of thousands or even millions of dollars in taxes.

But those savings come at a cost to the public.

By routing income and other assets, at least on paper, to offshore jurisdictions with low tax rates, the rich and powerful can shift the tax burden to ordinary citizens who pay taxes where they work and live, leaving them to bear the cost of services like schools or paved roads. Economists say that offshore holdings deprive governments of hundreds of billions of dollars in tax revenue every year.

Secrets revealed

The leaked documents provide a glimpse into what celebrities do with their money offshore.

Starr, with an estimated net worth of about $400 million, created two companies in the Bahamas that were used to buy real estate, including a “private dwelling in Los Angeles”.

The former Beatle also set up at least five trusts in Panama. Three of those trusts hold life insurance policies, of which his children are the beneficiaries, and another trust holds revenue from Starr’s royalties and live performances.

When reached for comment by phone, representatives for Starr declined to answer questions.

Schiffer, the German supermodel who has starred in ads for Victoria’s Secret, L’Oreal and Pepsi, owns at least six companies registered in the BVI. Records also show that she set up a trust there to invest her earnings for the benefit of her family. Through her lawyers, Schiffer told ICIJ partner Süddeutsche Zeitung that she was compliant with tax law in the United Kingdom, where she lives with her husband, the British film director Matthew Vaughn.

Many of the stars in the Pandora Papers are from the world of sports, including soccer players and coaches.

Revelations about celebrities’ secret offshore companies have led to denials, investigations and sometimes even more secrecy.

In 2018, Shakira’s use of offshore companies to manage her global music business prompted a tax evasion investigation in Spain. In July 2021, a Spanish judge ruled that there was sufficient evidence that the Colombian-born singer had failed to pay $16.4 million in taxes between 2012 and 2014 for her case to go to trial. Her PR agency said at the time that she paid the taxes she owed as soon as she learned of the debt.

The Pandora Papers show application forms for three offshore companies in Shakira’s name from 2019, as the tax investigation proceeded. These documents are typically used to incorporate new companies, but representatives for Shakira said in a statement to ICIJ media partner La Sexta that the companies were incorporated many years earlier, before Shakira was a resident of Spain, and that the forms were part of the process of transferring the companies to another law firm to be dissolved. They said that the companies have no income or activities.

Her representatives also told El País, an ICIJ media partner, that the singer used offshore companies because most of her income comes from outside Spain and that Spanish tax authorities are aware of all of her companies.

Mario Vargas Llosa, the Nobel Prize-winning novelist , denied that he owned a BVI-registered company listed in the Panama Papers, an ICIJ investigation that exposed more than 214,000 offshore entities.

Royalties

But new leaked documents show that Llosa has used another BVI-registered corporation to invest royalties from his writing. A representative for Llosa confirmed to El País that the author owned the offshore company named in the Pandora Papers, but said that it was properly disclosed to tax authorities and liquidated in 2017.

Tendulkar, a former member of India’s parliament who has been called the “Babe Ruth of cricket” , owned a BVI-registered company, Pandora Papers records show, but dissolved it in 2016 shortly after ICIJ published the Panama Papers. His company was not named in the 2016 investigation.

A representative for Tendulkar’s foundation told ICIJ in an email that the company held legitimate investments and that Tendulkar complied with his tax obligations. He also told ICIJ partner the Indian Express that there could be “no question of Mr Tendulkar having engaged in” any illicit practices.

James S Henry, an economist, lawyer and investigative journalist who has researched the use of tax havens, told ICIJ that the anonymity that shell companies allow is often a priority for people who live in the spotlight.

“Celebrities in particular are very sensitive about their private lives in many cases, and to some extent, that’s pretty legitimate,” he said.

However, he cautioned that privacy “is only part of the story” and could in some cases still facilitate tax avoidance that can only be found by looking at individual tax returns.

Here are five ways celebrities in the Pandora Papers have used the offshore system.

Julio Iglesias, real estate tycoon

The Spanish superstar singer-songwriter, whose net worth is estimated to be $936 million , owns more than 20 companies in the BVI.

Eight of those companies have purchased real estate in and around Miami, Florida since 2008, according to property records. Two additional companies linked to Iglesias but not listed in the leaked documents also own real estate in Miami.

The Pandora Papers records show that celebrities often use offshore companies to shield their identities when buying real estate. The secrecy helps them keep their fans from knowing what they own and, in some instances, authorities from collecting taxes on their properties.

Iglesias’s companies owned five lots on Indian Creek Island, a private Florida enclave known as “Billionaire Bunker”, with its own police force and armed marine patrol. Iglesias’s companies sold two of the Indian Creek lots in 2020.

The New York Post reported that Jared Kushner and Ivanka Trump bought one of the lots for $32 million. Trump and Kushner did not respond to requests for comment.

Some of Iglesias’s offshore companies are eligible for tax breaks on properties they own. Under Florida law, owners of multiple residences can designate one of them as their primary home, and their other properties automatically receive a “non-homestead exemption”, which reduces their assessed value.

Leaked documents show that Russell King, a Florida attorney, set up BVI companies for Iglesias with the offshore financial service provider Trident Trust. King is also listed in public records as the contact for several of the Miami properties Iglesias’s companies own. But he declined to comment on Iglesias’s offshore companies and real estate purchases, telling the Miami Herald that he was “not at liberty to discuss any contact that I may have had with present or former clients”.

However, King said that using offshore companies to purchase real estate in the US makes sense for clients who are neither US citizens nor permanent residents, because they have fewer exemptions from the estate tax. The US government applies that tax on the assets – or estate – of a person who has died, before those assets can be inherited.

For the estates of non-residents, the tax is applied to assets of more than $60,000. For US citizens and residents, the tax is levied on estates valued at more than $11.7 million. But if a non-resident purchases US real estate through an offshore company, that property is not considered a US asset and is not subject to the estate tax.

“I have never advised clients to buy a property directly because that would be a terrible structure,” King said.

Iglesias did not respond to ICIJ’s repeated requests for comment.

Sir Elton John, business mogul

The pop icon, whose estimated net worth is over $530 million, owns more than a dozen BVI-registered companies that receive income from his various business streams.

In addition to writing, recording and performing his own songs, Sir Elton has written the music for stage shows such as The Lion King and Billy Elliot: The Musical. The names of some of John’s BVI companies echo those of his blockbusters: WAB Lion King Ltd, HST Billy Elliot Ltd etc. He also created companies for revenue generated from the use of a new logo, created in 2017.

In many cases, John set up his companies in pairs, with one corporation for income generated in the United Kingdom and another for revenue earned outside the UK. All of the companies that receive income from the UK list David Furnish, John’s husband, as the sole director.

Celebrities can classify their income from activities such as touring, royalties and record sales as business income – unlike most workers, whose salaries and wages are subject to higher personal income tax rates.

John’s representatives said in a letter to ICIJ that his offshore companies pay corporate tax in the UK, and that he did not use them to reduce his tax bill or avoid paying any taxes owed.

Richard Murphy, professor of accounting practice at Sheffield University Management School, told ICIJ that setting up a company overseas to do business in the UK – which would make that company liable for UK corporate tax – is typically done for secrecy.

“I’d argue that if [a] company is collecting income from all around the world, but under management from the UK, all its activities are located in the UK, even though the source of income might be outside the UK,” Murphy said. “Those accounts should be on public record. Therefore, there should be no secrecy.”

Ángel Di María, celebrity endorser

The Argentinian soccer star earns a reported $14.5 million per year for his on-field play with Paris Saint-Germain, but he also has off-field income streams, which he routes through an offshore company in Panama.

The Pandora Papers reveal that many celebrities who earn money from “image rights” funnel those earnings to offshore companies. An athlete, for example, could set up a company in a tax haven and transfer the right to profit from his endorsement deals to that company.

The move can slash the athlete’s tax bill – and also draw scrutiny from regulators.

In June 2017, Di María pleaded guilty to two counts of tax fraud in Spain. He paid $2.2 million in back taxes and fines for failing to report image rights income from 2012-2013 that he routed through his Panamanian company, Sunpex Corporation Inc, while playing for Real Madrid .

A representative for Di María confirmed to ICIJ that the player created Sunpex and sold his image rights to the company in 2009. Leaked documents show that the company continued to earn income from Di María’s image rights even after he paid the fine. In August 2017, he signed an agreement transferring his Adidas endorsement income to Sunpex.

Records show that other brands negotiated with Di María’s offshore company to endorse their products. In December 2014, Sunpex agreed to an endorsement deal for Di María, then a player with Manchester United, with the Japanese sports drink brand YOU.C1000. In exchange for Di María filming a commercial in Manchester with his then teammate Robin van Persie, posting on social media about the shoot and providing autographed jerseys, the marketing agency that produced the ad agreed to pay Sunpex $150,000.

Di María’s representative told ICIJ that the player set up Sunpex on a recommendation from a “tax professional” and said that many other foreign players in Spain were advised to set up offshore companies to receive image rights income.

Under Spanish law, at least 85 per cent of the money a player earns from his club must be salary that is subject to personal income tax. The rest can be classified as image rights income and taxed at an often-lower corporate rate. The Spanish government has attempted to crack down on athletes and other celebrities funnelling that money through companies in tax havens.

George Turner, executive director of TaxWatch, a British think tank that studies tax compliance, called image rights strategies like Di María’s an attempt to separate an economic benefit from the person responsible for it, saying that it is vital for regulators to remember that the two are inextricable.

“It’s not like the image right exists on its own without the player,” he said.

Bernie Ecclestone and Flavio Briatore, luxury shoppers

Some celebrities use offshore companies to buy yachts or private jets. Bernie Ecclestone, the former CEO of the group that oversees Formula One (Grand Prix) auto racing, and Flavio Briatore, the former Renault F1 team owner, bought a London soccer club.

They used a company registered in the BVI, Sarita Capital Investment, to buy a controlling interest in Queens Park Rangers in 2007 for $28.2 million. At the time, the club was in debt and had not played in England’s Premier League for more than a decade.

Ecclestone previously faced scrutiny for offshore financial dealings. He settled with UK tax authorities for $20 million in 2008 after a nine-year investigation, and he paid $100 million to end a bribery trial in Germany in 2014. He denied wrongdoing in both cases, which involved allegations related to his family’s offshore trusts.

Briatore and Ecclestone are not the only wealthy men to own UK soccer teams through companies registered outside the UK. In a 2018 report on offshore ownership in the sport, Tax Justice Network found that about one in four clubs in England and Scotland had significant ownership stakes held outside the UK.

Turner, of TaxWatch, said the offshoring of team ownership is an extension of soccer’s growing wealth. “The clubs have been taken over by ultra-wealthy people who already had an offshore network of companies,” he said.

Such a network was involved when Ecclestone and Briatore were looking to sell their stake in the club in 2011. AirAsia founder and former F1 Team Lotus owner Tony Fernandes ultimately bought the team through a Malaysian company, and leaked documents from the lead-up to the sale reveal the extent to which the Queens Park club was owned by offshore entities.

The leaked files include a “terms of sale” sheet from February 2011 in which a Jersey-based company, Exelixi Ltd, agreed to buy Ecclestone’s and Sarita Capital’s shares of the team (Briatore’s shares were part of Sarita’s stake).

The proposed deal also included taking over loans that Ecclestone, Sarita and four other offshore companies – based in the BVI, Cyprus and Delaware – had made to the club.

The documents don’t reveal what happened to this deal or who owns Exelixi Ltd. Fernandes told ICIJ by phone that he had no connection to Exelixi Ltd and had not owned any companies in Jersey. But the soccer club’s financial statements show that he ultimately used his Malaysian company, now named QPR Asia Sdn Bhd, to buy Ecclestone’s and Sarita’s shares and take over the club’s loans.

The files also don’t indicate whether Ecclestone and Briatore made a profit from the sale, but the club posted losses every year they owned it, according to the team’s annual reports.

Tax experts say such losses could be offset against Ecclestone’s and Briatore’s personal incomes and reduce their tax bills.

“In effect, what you’re doing is getting the taxpayers to subsidise your ownership of the club,” Turner said.

In a telephone interview with ICIJ, Ecclestone said he could not provide details about Sarita Capital or the purchase and sale of the team. He said that he got involved as a “favour” to Briatore and that his name was primarily used to attract other investors and managers to the club.

The 90-year-old billionaire also said that Briatore and other investors were more optimistic about the club’s sporting prospects. Queens Park Rangers played three seasons in the Premier League in the last decade and finished in last place in two of them.

“The only one that wasn’t very excited about the football was me, because I’m a realist,” Ecclestone told ICIJ.

Briatore did not respond to ICIJ’s repeated requests for comment

Jackie Shroff, Bollywood beneficiary

The Bollywood star and film producer was the beneficiary of an offshore trust, along with his daughter Krishna, and his son Jai “Tiger”, who is also an actor.

Shroff’s mother-in-law, Claude Marie Dutt de Cavey, who died in 2010, created the New Zealand-based Media Trust in 2005. The leaked files include an invoice from the trustee, London Fiduciary Trust group, for the establishment and administration of the trust.

Many of the celebrities found in the Pandora Papers are either beneficiaries or creators of offshore trusts, which can be used to protect assets for future generations.

The leaked documents include a “memorandum of wishes” based on discussions between Shroff and the company overseeing the trust. According to that document, Shroff sought to be considered the Media Trust’s primary beneficiary, noting that “his needs should be paramount” and calling for any funds to be “invested in an aggressive manner”.

Turner said that beneficiaries attempting to exert influence on the management of a trust could be tiptoeing along the edge of an ethical boundary.

“The key to the trust is that the trustees have to exercise genuine independence over their management of the assets involved,” Turner said. “When trusts become problematic is when that independence doesn’t really exist except on paper.”

Shroff’s wife, Ayesha, told ICIJ media partner the Indian Express that she and her husband had “absolutely no knowledge of any such trust”.

Records show that the Media Trust was closed in 2013.

Contributors: Marcos García Rey (ICIJ), Kevin Hall and Antonio Delgado (Miami Herald), Ritu Sarin and Sandeep Singh (Indian Express), Joaquín Castellón (La Sexta), Daniele Grasso (El País), Mauritius Much (Süddeutsche Zeitung), Benedikt Strunz (NDR), David Conn and Simon Goodley (Guardian), Leo Sisti and Paolo Biondani (L’Espresso), Ivan Ruiz (Infobae)

The Pandora Papers is a global collaboration between The Irish Times and the nonprofit International Consortium of Investigative Journalists