Irish entrepreneurs avoid VAT by buying jets in Isle of Man
Paradise Papers: Kennelly and Nolan bought private aircraft using IoM-linked structure
Irish businessmen Denis O’Brien, Jerry Kennelly and Ray Nolan have all bought private aircraft using the Isle of Man which has one of the world’s largest offshore private aircraft registries on the back of an attractive VAT scheme.
The use of the Isle of Man to avoid having to pay VAT has been highlighted by the Paradise Papers, which include files on the work done by the Appleby law firm for customers wanting to use the VAT friendly-jurisdiction.
Jerry Kennelly and Ray Nolan bought a $4.5 million private aircraft in 2016 using an Isle of Man-linked structure that allowed them avoid having to pay VAT but achieve immediate free circulation within the EU.
While any VAT paid in Ireland might have been refunded given that the aircraft was to be used primarily for business purposes, the advice EY (formerly Ernst & Young) in Cork gave to the businessmen was that it could not be certain that the Irish Revenue would return the VAT if the aircraft was imported directly into Ireland.
Furthermore, the advice said, importation through the Isle of Man meant that the approximately €1 million VAT charge would not have to be funded, and that a corporate structure put in place for the ownership and operation of the aircraft might mean that no VAT would have to be paid on fees charged for the use of the aircraft.
The Irish businessmen’s aircraft is just one of almost a thousand aircraft bought for business use that have been imported into the EU over the past 10 years through the Isle of Man.
The Isle of Man is not part of the EU but is viewed as being part of the union for VAT purposes. An effect of this is that once a new aircraft is imported and VAT-cleared in the Isle of Man, it is then free to travel within the EU as it is deemed to have been VAT-cleared for each members state.
The structure put in place for the ownership and operation of the aircraft bought by Kennelly and Nolan involved companies in Ireland and the Isle of Man all of which are ultimately owned by the two businessmen.
They purchased a Pilatus PC-12 in February 2016 using Isle of Man company Wingmen Ltd, with Kennelly being a 75 per cent owner.
The aircraft was imported in April 2016, landing in Ronaldsway airport in heavy rain and with the importation process being concluded within two hours. The day afterwards the pilot, Graham Ball, wrote an email to a number of the parties involved saying the delivery had been a great success and that they had flown on to Kerry where they arrived at 6.30pm after four hours of flying and “a seamless import through the Isle of Man”.
“The customer seems to be delighted with the product, and I know that the whole group had a very enjoyable day.”
Kennelly is a Killorglin-based photographer who sold his photo image business for €110 million in 2006 and now runs a global design business, Tweak. com. Nolan is a serial technology entrepreneur who reportedly made €100 million from the sale of his Hostelworld. com venture.
A spokesman for their company, Wingmen, responded to a request for comment with a one-line statement: “The ownership and leasing structure is fully tax compliant in Ireland and the Isle of Man and creates no tax benefits for the company or its shareholders”.
One source said the use of the Isle of Man structure by Wingmen was not so much a tax device as done for operational decisions.
Using Ireland would run the risk that the Revenue would not allow VAT be reclaimed for business purposes, the source said. Also, if the plane was to be sold it would probably be the corporate structure, rather than the aircraft itself that would be sold. Having the Isle of Man structure in place increased the value of the aircraft.
The EY advice to the businessmen said that passenger transport services can be provided by an Irish company and that the charges involved should qualify for VAT exemption “although there is a possibility of a Revenue challenge”.
The leaked documents show that Airmen Ltd, based in Killorglin, Co Kerry, leases the aircraft from Wingmen Ltd, in the Isle of Man, in a deal involving a minimum of 400 hours use per year, at a minimum of €750 per hour, which Airmen pays to Wingmen.
A spokeswoman for the Revenue said VAT on aircraft imported into the State from non-EU countries is charged at 23 per cent and the VAT can be reclaimed when the aircraft is used for genuine business purposes subject to the retention and presentation of the relevant proofs.
Airmen has passenger transport services agreements with companies associated with Kennelly and Nolan, being, respectively, Kilmakillogue Capital and RV7 Venture Services Ltd.
The work on creating the ownership structure for the businessmen’s aircraft began in September 2015 after a solicitor from William Fry solicitors in Dublin made contact with Appleby on behalf of Kennelly. The indirect taxes manager with EY in Cork worked with EY in the Isle of Man, and Appleby’s, on behalf of the Irish businessmen.
The Swiss-manufactured aircraft was purchased from UK firm Oriens Aviation. The Pilatus is a propeller powered aircraft that can carry up to nine passengers and is known for its ability to land on small runways, and its ability to hold its value.
The leaked files show that Appleby lawyer Camilla Neal, who worked in the Isle of Man Appleby office up to 2012, had developed a role as the key contact for the private wealth office of “Irish telecoms billionaire Denis O’Brien” and this was a valuable relationship for the office.
In 2013, according to an internal memo from November of that year, Neal had acted in the delivery and registration of O’Brien’s new Gulfstream 650 jet and sale of an older 550 Gulfstream, even though Neal had since moved to the firm’s Guernsey office.
The client had wanted Neal’s involvement and was prepared to pay for her travel to the Isle of Man “at closing to organise board meetings and documentation exchange.” This showed the extent to which her skills were valued by the client, the note said. After the transaction she received a note from O’Brien thanking her for the smooth running of the transaction.
In November 2015 O’Brien put his 2013 Gulfstream up for sale after he purchased a newer €60 million model. It has an Isle of Man registration number, but bears an Irish Tricolour on its tail wing. A request for a comment from a spokesman met with no response.