F1 boss Bernie Ecclestone to fight £1bn tax bill as settlement is torn up

At the heart of the case is the Ecclestone family's Bambino trust, which is based in the offshore tax haven of Liechtenstein

F1 supremo Bernie Ecclestone (Getty Images)

Bernie Ecclestone is taking legal action against HM Revenue & Customs over claims that he owes the tax authority more than £1bn after it tore up a settlement agreed with the Formula One boss in 2008.

“They made an assessment of me and we are effectively suing them for breach of contract,” said Mr Ecclestone speaking in Monaco before this weekend’s Grand Prix.

At the heart of the case is the Ecclestone family’s Bambino trust, which is based in the offshore tax haven of Liechtenstein. It is believed to have raised more than $4bn largely from selling stakes in F1. Bambino was established in December 1997 by Mr Ecclestone’s ex-wife Slavica, who is one of its beneficiaries along with their two daughters Tamara and Petra.

At the time, Mr Ecclestone, who turns 85 in October, was in poor health which led to him having a triple bypass in 1999. Slavica was 28 years his junior and as she was not domiciled in the UK she would have had to pay 40 per cent inheritance tax on money received from him if he had died, whereas spouses are usually exempt from this.

To prevent his income from being taxed if he had died, he transferred his most valuable asset, the entire share capital of F1’s parent company, to a Jersey-based business called Petara, which was ultimately owned by Slavica. She then put the shares in the Bambino trust and, as it is located offshore, no tax has been paid on the money raised from selling them.

The catch is that Mr Ecclestone is a UK resident, so he is not allowed to control the trust, otherwise it would be declared a sham and he would have to pay tax on it. This is because tax law states that if a UK resident transfers assets to a non-domicile and income becomes payable to the non-domicile, the transferor must not have “the power to enjoy” it.

Mr Ecclestone denies ever having had control over Bambino and HMRC endorsed his view with a settlement in 2008 which followed a 10-year investigation. However, a recent bribery trial against Mr Ecclestone fuelled a further investigation.

Prosecutors in Germany charged Mr Ecclestone with paying part of a $44m bribe to former banker Gerhard Gribkowsky, who was in charge of selling a 47.2 per cent stake in F1 in 2006 to the private equity firm CVC. Mr Ecclestone was accused of steering the sale to CVC as it had agreed to retain him as F1’s chief executive.

Mr Ecclestone denied this and maintained his innocence even though he paid $100m to settle the case last year. The judge Peter Noll released a statement saying that “prosecution of the defendant due to bribery is not probable as things stand.”

Mr Ecclestone said that in fact Mr Gribkowsky threatened to tell HMRC that he controlled Bambino if the $44m was not paid. This could have influenced HMRC’s inquiry so Bambino paid part of the $44m to Mr Gribkowsky along with Mr Ecclestone.

This disclosure led to HMRC re-opening its investigation and, according to company documents, “Mr Ecclestone was notified in March 2012 that HMRC in the UK is currently investigating his tax affairs focusing primarily on his connections directly and indirectly to offshore trusts. HMRC has informed Mr Ecclestone that the investigation is being conducted in accordance with Code of Practice 8. This is applied in cases where there is no suspicion of tax evasion, but instead HMRC wishes to investigate if any tax planning undertaken by a taxpayer is effective to achieve its intended effect. The purpose of the investigation is to identify if there are any amounts of underpaid tax.”

It culminated in HMRC re-assessing Mr Ecclestone and writing to him in December demanding more than £1bn in tax and interest. Mr Ecclestone is challenging this and has requested a judicial review. Judge Kenneth Parker said that this should be put on hold until his challenges are heard. The tax authority’s lawyer Tom Weisselberg said that “from HMRC’s perspective the settlement is void.”