American investors used secret Scottish ‘zero-tax’ firms in £6bn Formula One takeover

The company completed the deal with the help of two Scottish limited partnerships, or SLPs: once obscure structures now popular among both legitimate businesses, for lawful tax planning, and among international criminals, for money-laundering.

Its takeover comes amid widespread political calls for an investigation into the tax affairs of London-based Formula One, which saw German driver Sebastian Vettel triumph in the first Australian Grand Prix under the new ownership.

David Leask analysis: Transparency dwarfed by the grey economy of fronts for gangsterism

Under the sport’s previous owners, only £100 million was paid in corporation tax on profits of £4bn over the last decade, an effective tax rate of about two per cent.

Campaigners claim it legally avoided £500m in tax as a result.

Labour MEP Anneliese Dodds last night renewed her demands for an independent investigation into how Liberty Media had bought Formula One in the light of its use of SLPs.

She said: “This is yet another example of a loophole in the tax system that can be abused by companies and individuals looking to avoid their contributions. These shadowy SLPs are another tax instrument that, like trusts, need to be made transparent to crackdown on those avoiding tax.

“Any time that tax avoidance occurs, that limits investment in schools, hospitals and vital infrastructure. We must make sure all companies pay their fair share.

“We’ve already seen Formula One’s previous owners setting up special tax deals with HMRC to pay just $6.5m on nearly $500m profit. I have called on the European Commission to investigate whether that deal constituted state aid and I will continue to call for these Partnerships to reformed or brought to an end.”

Anneliese Dodds MEP

David Leask analysis: Transparency dwarfed by the grey economy of fronts for gangsterism

Liberty Media declined to answer questions about why it had registered two SLPs at the sedate grey granite HQ of a law firm in Ms Dodds’s home town of Aberdeen.

However, before the takeover, the Americans had praised the tax structures of F1’s Jersey-based parent firm, Delta Topco.

Speaking about the F1 deal, Liberty’s chief corporate develop- ment officer Albert Rosenthaler told analysts: “We have managed to do the transaction in a way that will permit an efficient repatriation of money back to the US without incremental tax for many, many years.”

The corporation openly lists both SLPs as subsidiaries and one, called Liberty GR Foreign Holding Company I LP, has the capital value in cash and shares at almost exactly the $8bn purchase price of Formula 1.

Another SLP, with an almost identical Liberty GR Foreign Holding Company II LP, is one of the partners in the first.

Both are ultimately owned by other shell firms, registered subsidiaries of Liberty in Delaware An official spokeswoman for Liberty Media said: “We have no comment.”

There no suggestion of wrongdoing by Liberty Media.

But the deal marks the highest profile lawful use of SLPs in recent years as they prove popular among private equity investors because they have legal personality – and can therefore buy and sell shares and other assets – but no tax direct obligations.

That is because it is the partners of the firm that are responsible for taxation, not the SLPs themselves.

Formula One

Scottish law firms have created SLPs with partners in offshore zones for international equity funds, attracting major clients.

However, such lawful, if controversial, tax-avoidance structures are far outnumbered by completely opaque SLPs marketed globally – and specially in the former Soviet Union – as “zero-tax offshore companies”. Last week, The Herald revealed more than 130 SLPs had been used as part of the £16bn Russian laundromat, the biggest and most elaborate money-laundering scheme in world history.

David Leask analysis: Transparency dwarfed by the grey economy of fronts for gangsterism

Owners of SLPs can legally remain secret, file no accounts and pay no tax, provided the SLPs official partners are located in a traditional tax haven.

Politicians of all five main Scottish parties have called for reform of SLPs to stop criminals abusing them. Scottish law firms, however, are concerned their lawful tax planning businesses could be damaged by any crackdown on money- laundering and gangsterism.

The two Liberty SLPs were created by the Aberdeen branch of a UK-wide law firm on August 24 and 25, 2016, and are formally registered at its address in Queen’s Road.

Accountant Gary Deans, who advises Oxfam, said: “This is a typical private equity structure.”

Scotland’s legal establishment yesterday formally came out against radical reforms of SLPs.

David Leask analysis: Transparency dwarfed by the grey economy of fronts for gangsterism

The Law Society fears it could harm what it sees as legitimate uses of SLPs, such as “tax planning” for international private equity funds.

The body, which represents the interests of lawyers, said it believed there should be wider look at UK corporate structures.

THE HERALD VIEW: The Law Society perhaps overestimates the sympathy PAYE taxpayers will have with the plight of their often very wealthy customers.

Liberty Media, in a US stock market announcement, said it and a wholly owned subsidiary in the Caymans had bought all shares in Delta Topco Limited of Jersey.

The Cayman firm, called Liberty GR Cayman Acquisition Company, owns an English firm called Liberty GR Holding Company, which in turn owns a business called Liberty GR Acquisition Company. Both firms were incorporated in Bristol the day after the SLPs.

Liberty declined to discuss its corporate structures and which of them was the immediate owner of Formula 1. Liberty, in public filings, said it had bought Delta Topco for $3.05bn in cash and approximately 56 million of its shares.

The founding capital of Liberty GR Foreign Holding Company ILP is more than $3,019,500,089.59 in cash and 55,424,474.82 shares.

F1 made $1.7bn – nearly £1.4bn – of revenue from its motor races and related business, such as sponsorship, in 2015, the last year for which there are accounts. Much of this activity was in the UK.

How this story looked in print