Hans Rausing has lived a fairy tale life. His home is a palace. His own private valley dips down through the trees to his own private lake. Inside, he walks on marble floors. In his strong room, he keeps silver plates and golden coins and whole hogs of bacon, because it is conveniently cool in there. And he is as rich as a dream.
He was already a multi-millionaire, already named the richest man in Britain, before he received what was probably the largest cash payment in the history of mankind in 1996 – a £4,500 million windfall when he sold his stake in the family company, TetraPak, which makes the cartons in which the world now drinks its milk.
Beyond all this, Hans, now aged 76, enjoys one further touch of magic. While almost everybody else in the kingdom lives in fear of the cruel taxman, Hans is protected by kindly advisers who flutter into his office from time to time to grant him wishes: profits are suddenly turned into losses; he no longer owns the things he owns; he himself can simply vanish and reappear as a charitable foundation, an off-shore company or the wholly owned-subsidiary of a Cayman Islands trust. It’s magic. It costs Hans up to £600 an hour. It’s worth it. And the really happy ending to the story is that it is all legal.
In Britain in 2002, tax law is so full of loopholes for the wealthy that while wage earners work on Pay As You Earn, the rich are on Pay As You Like. If Hans and his family invested £4,500 million and earned just 5% a year, their income would be £4 million each week. They could pay 40% tax in full, give the Treasury some £90 million a year (enough to build eight new secondary schools or to hire 5,000 new nurses) and still have £370,000 a day to get by on. But that is not what Hans Rausing does. He uses so many loopholes that in one year which I studied, he and his UK businesses ended up receiving more money from the Treasury than they handed over. And it’s easy.
First piece of magic. The law says that if you live in the UK, you have to pay UK tax on your earnings in the UK and anwhere else in the world. Hans has been living in the UK for 20 years. But he has not had to pay tax on his earnings in the rest of the world. The reason? One little word with all the weight of the law behind it.
Hans ‘resides’ in the UK. There is no doubt about that: his home is here; his family are here; and he agrees that, for tax purposes, he is a resident of the UK. But he is not ‘domiciled’ here. To put it another way, his home is here but his real home is in Sweden, where he was born. And ‘non-domiciled residents’ are allowed to pay no UK tax at all on anything which they earn in the rest of the world, as long as they do not bring it into the UK. So he can save himself millions.
In the 20 years he has been living here, Hans has earned a fortune in the rest of the world. For the first 13 years, he was the head of Tetra Pak, earning a handsome salary and sharing family dividends of up to £50 million a year. He might have paid income tax on all of that. Then his family got their £4,500 million windfall. They might have paid 40% capital gains tax – multiple millions of pounds for schools and hospitals. But not Hans – not as long as he kept the money outside the UK.
The law allows him to do this for as long as he likes. He has already done it for 20 years. It allows his children to do the same if they choose ‘non-domicile’ status. Just about no other country in the world allows this to happen. America, France, Germany, Canada, Belgium – they all say that if you are resident, you pay your tax, and never mind where you and your father were born.
But the UK invites Saudi princes, Greek shipping owners, the heirs to American fortunes and assorted business executives to come here as tax asylum-seekers for as long as they like. There are now some 60,000 of these non-domiciled residents in the UK.
And their global earnings can not only escape UK tax. They can escape everybody’s tax, because the law allows them to stash their cash in off-shore tax havens. There are 69 of them now, from the Channel Islands to the Caymans Islands, from the Dutch Antilles to the British Virgin Islands – places that let wealthy families and international corporations park their cash beyond the reach of the taxman. The haven takes an annual fee and, in return, it charges no tax, imposes no rules, asks no questions and insists on secrecy.
I traced some of Hans Rausing’s fortune to Grand Cayman, where he has stored cash in two trusts, named Serebro and Zemlij. Through a trustee company called Greenland, they loan cash to other Cayman companies – Zirundium, for example, which for years owned a farm in Kent on Hans Rausing’s behalf. Last year, the farm was sold for several million pounds. If Rausing had owned it in his own name, he would have been liable to pay capital gains tax. But he didn’t own it. Zirundium did. So there was no need to pay any capital gains tax at all.
But this is only the beginning of the magic. Even if a man like Hans Rausing can avoid tax on his earnings around the world, the Inland Revenue still expect him to pay tax on any income which arises in the UK. But it’s not quite as simple as that.
For example, Hans has an investment company in London called Alta Advisers. It acts as a broker for a Swiss company called Arctic which was set up by the Rausings in 1996 to manage their £4,500 million windfall. Since then, it has declared a total annual profit of £1.1 million. But the Treasury is no better off as a result.
Simply, Alta has given all of its taxable profits to charity, and the charity is… the Marit and Hans Rausing Charitable Foundation. (Marit is Hans’ wife). Every year, according to its published accounts, “the charity receives income in the form of a covenant equal to the taxable profits of Alta Advisers Ltd”. The taxman receives no corporation tax; he keeps no income tax; the cash which might have been spent according to the wishes of the elected government is instead spent according to the lawful wishes of the trustees.
And, if the message were not clear enough, the charity has donated some £400,000 to right-wing political think-tanks who are campaigning, among the things… for lower taxes.
Hans has had two other business in the UK – the 1,800-acre arable farm in Kent and a deer farm at his palace in east Sussex. Neither of them has paid any tax for the simple reason that neither of them has made a profit. But, when you have legalised magic on your side, making a loss turns out to have its advantages. The rules allow Rausing to use both farms to claw back money from the state to which he gives so little.
Start with the deer farm. When Rausing first bought it, in 1975, he diverted its ownership offshore. But in 1989, on the advice of his accountant, he shifted it back to his own name.
That meant that the deer which he had bought to keep his 1,000 acres of pasture in good order became his own personal farming business. And the Inland Revenue has special tax breaks for farmers, particularly for those who lose money. Using two different sets of rules, Rausing was legally able to cut his annual tax bill by an average of £26,000 – enough to pay the salary of a teacher, for example.
We studied Rausing’s tax liability for one particular year, 1998/9. He started with a declared income of about £656,000. We believe that is his pension from TetraPak. Because he brings it into the UK, he has to pay income tax on it. So, it looks as though he is going to pay the tax man 40% of that – about £256,000.
But, in 1998/9, he was owed several years from the tax break on his deer farm. The result was that the £256,000 dropped to £191,000. It also turned out that he had overpaid his tax the previous year by £41,000, so the bill was cut again, to £150,000. But the magic with the farms had only just begun.
Hans was registered for VAT at both farms. A business which sells goods with VAT adds 17.5% to its prices and then passes the money to Customs and Excise. At the same time, when the business buys raw materials, it pays 17.5% and is allowed to claim it back from Customs. Most businesses collect more VAT from sales than they pay out on purchases, so every so often, they send a cheque to Customs. But Hans’ farms (quite lawfully) collected very little VAT. So, Customs started sending cheques to them.
At the deer farm, for example, in the four years from April 1996, Customs paid Hans a total of £185,302.96 in VAT refunds on purchases for the farm – an average of £46,000 a year. At the arable farm in Kent, in the same way, Customs were paying his business an average of £60,000 a year in VAT refunds.
And at the same time, the Kent farm was claiming agricultural grants from the government. Over the three years to May 2000, these grants totalled nearly half a million pounds – an average of more than £150,000 in grant income from the state whose potential bills Rausing was so reluctant to pay.
Now, come back to 1998/9 when, as we have seen, Rausing’s income tax bill had fallen to £150,000. He can pay that in full. In that same year, however, he and his businesses claimed £33,572 in VAT at the deer farm; £49,971.77 in VAT at the Kent farm; and £136,158.71 in grants at the Kent farm. A total income from the Treasury of £219,702.48. Total surplus, after deducting £150,000 of income tax: £69,702.48.
The richest man in Britain, who started with a possible tax bill of many millions, had paid no millions at all. Nothing like eight new secondary schools or 5,000 nurses. Indeed, the Treasury gave him more than he gave them. That’s modern magic. And the law let him do it.
