BVI Offshore Business: Grey Area

After an eight-day trial at the UK Portsmouth Crown Court, an Island businessman of Sudan origin Mohamed Ahmed Elobeid is found guilty of not paying the largest part of taxes from his £400,000 profit, by setting up BVI offshore trust and bank accounts. He was accused of having cheated HM Revenue and Customs of the amount more than £196,000 over eight years, by having his income lodged overseas and withdrawing it in cash.

Elobeid had denied the fact that he avoided paying income tax and National Insurance relating to his company, Sayf International Aviation Services, and that he tried to cover up bank accounts during a Revenue investigation, by not including them on tax forms.

In the eight years ending in 2004, Elobeid declared an income of £35,713 when reconstruction of his dealings by a financial expert showed it should have been £435,180. When he was living in St Helens, he organized the following scheme: through the Dominion Trust in Guernsey he set up the trust in a third tax haven, the British Virgin Islands. Customers paid into the trust while he instructed the trust to pay money into Jersey bank accounts. Also, large cash sums were drawn by him from British branches of the bank.

The businessman had told the court he believed his actions were legitimate. The case was adjourned for sentencing until December 5. Elobeid was granted unconditional bail.

The British Virgin Islands-registered Platte International Ltd, formerly known as Micro Bill Systems (MBS), is known as a company with an unusual business model, which already seems to cause some problems to its customers in the UK. People go to websites that use its software, click an agreement offering a free trial and download software to their computer. Then, if customers do not actively end the trial by paying the subscription, they start to see popup windows that appear more and more often, making it harder to use the computer. By complaints of the customers, most of them say they had nothing to do with the company called Platte Media, the popup notices demand payment in the amount of £29.99. For those who do not pay, Platte Media BVI sends letters threatening legal action at the small claims court. For those who do not see the forgery, the letter is included which appears to be from “Issuing Court Northampton County Court”, but in reality it does not.

Some consumers claim only to see a popup bill demanding £29.99 for a 30-day subscription, but in a number of cases it just means that they are not willing to admit their signing up on the family PC for company’s services meaning signing up for free trial to watch pornographic films.

Platte International Ltd BVI has already attracted attention for having stills from mainstream films on a website when in reality it was offering thousands of pornofilms. Another questionable thing about the company is its ability to obtain personal details about the customers. It was suggested by some people that Platte International uses IP addresses to ask internet service providers, because when installing of software does not demand any personal details. However Stanly Hiwat, the chief executive officer of Platte International Ltd BVI, informed that the only situation where the company would get an individual’s address is when a court grants an Order requiring the Internet Service Provider to disclose it.

And the last question about the BVI company, which is also the most tricky, is about whether it is registered for VAT, and if yes, then in what jurisdiction. One of the customers, having paid for the subscription, asked for a VAT receipt, but the receipt arrived without a VAT number, and he was informed that any payment made to Platte Media was to Platte International in the British Virgin Islands, and as such was not subject to VAT.

This fact became the focus of the interest of HM Revenue and Customs, which was asked whether really the company registered offshore and providing services to customers in the UK, is  not liable to VAT. HMRC answered that non-EU suppliers providing “electronically supplied services to UK consumers” were required to register for VAT in case if the VAT threshold is exceeded.

The BVI company claims that it does not exceed the VAT threshold, which makes £67,000 in a year, but it seems that it does. Hiwat, the CEO of BVI-based Platte International Ltd, who is located in Brazil, did not answer any detailed questions about VAT, having said just some common phrases. However, it is suggested that there are between 40,500 and 64,500 downloads per month on company’s websites, and this makes the company to exceed the limit to a large extent, assuming that large part of subscriptions comes from the UK.

Mike Bailey of accountancy firm PricewaterhouseCoopers (www.pwc.com/) commented that it is a real problem for non-EU companies supplying electronic services to be enforced for VAT registration, because it is very difficult to find out which non-EU companies should have registered on their income.

HMRC is more determined: if it becomes aware that an overseas trading company (including BVI-based Platte) is liable to register in the UK, it can compulsorily register them and issue an assessment of any tax due. If appropriate, a civil evasion or belated notification penalty can also be issued.

Businessman Dave King failed to postpone a case brought by the South African Revenue Service (SARS), for the right to sell shares in a British Virgin Island company. SARS is trying to receive back taxes allegedly owed by King, and to sell the BVI company shares that are said to be transferred to hide King’s wealth.

It is the last episode in a seven-year war between SARS and King, for tax debts owed by King and his offshore trust Ben Nevis Holdings (also registered in BVI). SARS alleges that Ben Nevis in 2002 transferred all of its South African assets to the offshore company Metlika Trading (BVI), to disturb authorities from looking into BVI trust’s assets. BVI-registered Metlika is the major shareholder in South African companies that own wine farms, game farms and King’s homes.

It is claimed by SARS that Ben Nevis Holdings owes R1,4 billion in debts and penalties, for non-declaring income from the sale of shares in King’s company. SARS says that the money made by Ben Nevis from the sale of shares from Specialised Outsourcing of this company was revenue, so Ben Nevis and Kings are liable to taxes on it. King argues the proceeds have capital nature, so they are not taxable in South Africa.

It was ruled by the court that the case against Ben Nevis and King are to be separated, and the King case would be heard at a later date. This is because King is also facing a criminal case, and any testimony he gives in the tax trial might incriminate him. Also, by the order of the court, King must pay the costs of the two-week application.

King is personally believed to owe SARS R900mln for false declarations in his tax returns for the years 1990-2001. In March of this year, King lost a bid against the UK Fraud Office, to retain all his foreign assets, which probably make the most substantial part of his wealth. It was ruled by the UK court that the restraint order remained in place, but limited it to the UK, Guernsey and Scotland, not extending it worldwide as SARS had hoped.