The Truth about Vitol’s tax affairs

The Tory donor whose firm is one of Britain’s biggest tax avoiders — with HMRC’s blessing

Vitol's chief executive Ian Taylor (Harry Borden)

This article was originally published on 24 July 2014

One of the Tories’ biggest donors and a major contributor to the Scottish “No” campaign runs a vast oil-trading company which has potentially avoided UK corporate taxes on billions of pounds of profit with the blessing of the taxman.

Ian Taylor is one of Britain’s richest men due to the massive profits of the oil-trading giant Vitol which he runs as chief executive. He has donated £500,000 to the Better Together campaign on Scottish independence and has given the Conservative party £550,000 since 2006.

The Independent was contacted by an insider who wanted to expose how Vitol arranges its business to pay a fraction of the standard UK tax rate for its hugely profitable London operations. As a result, over recent weeks, this newspaper has gathered documentation from internal and external sources and arranged for covertly recorded conversations with UK-based executives.

Together, they paint a picture of an organisation where staff in London are presented as “intermediaries” when they are actually the brains that make hundreds of millions of dollars a year in profits. This means the profits on their trades are shifted to low-tax Switzerland.

The company says its tax structure has been approved by HMRC.

Internal documents from the company’s London headquarters show in the past nine years it has paid an average of just 10.5 per cent tax on its global profits, which totalled nearly $15bn (£8.8bn) over the period.

2.6%

Vitol's 2013 tax rate paid on global profits

Last year it paid 2.6 per cent global tax on profits of $846m, the document from the parent company shows. The company did not comment when asked about these figures.

“It is simply unbelievable that they can get away with it. Nobody in the industry can work it out,” said one commodities executive familiar with the company.

Vitol’s London executives are renowned in the industry for their enormous wealth, and use of private helicopters and personal jets. The company, insiders say, claims that its multimillionaire London staff are merely “brokers”, acting as middlemen arranging trades on behalf of its staff who confirm the deals in Switzerland.

That makes it appear that the most profitable actions — the trading deals themselves — are made in low-tax Switzerland, so the profits they create are taxable there.

However, the so-called “brokers” in London privately admit that they are actually traders, making decisions on buying, selling and transporting oil around the world, using their high-level contacts and skills.

Their trades are “confirmed” in Switzerland, but this is only, Vitol insiders said, to comply with its UK tax scheme.

As a London Vitol trader explained in one of the conversations recorded: “Officially we are ‘brokers’, but obviously we are traders. We make the decisions and then Geneva issues the confirmations.”

Another, described externally as a broker, says on tape: “I am a trader,” before specifying what kind of trading he specialises in.

One confirmed that Vitol’s peculiar UK structure was entirely due to the company’s tax agreement with HMRC.

The Independent is not revealing traders’ identities in order to protect sources.

A spokesman for HMRC said: “HMRC does not discuss the tax affairs of individual businesses or companies. HMRC’s role is to ensure that the taxrules are complied with in line with UK law. We investigate all of the relevant facts when determining how much of a multinational enterprise’s profits should be taxed in the UK.”

The General Anti-Abuse Rules from HM Treasury which came into effect last year state that corporate structures must not be arranged specifically for tax reasons.

HMRC’s rules on foreign companies trading in the UK on its website state: “A company not resident in the UK is within the charge to corporationtax only if it carries on a trade in the UK through a permanent establishment in the UK.”

The guidance adds that the definition of “trading” has been the subject of many disputes in the tax courts but is widely held to mean the place in which the “controlling mind” behind the deal is based.

Vitol is Dutch-owned but has headquarters in Geneva. However, many of its key decision-makers remain in London, living in expensive homes, working at the top floor of an office block in London’s Victoria area.

While not all Vitol’s global profits — $845.9m last year — are made in London, sources said a substantial portion comes from its traders based there and would ordinarily be taxed at the general corporate tax rate — currently more than 21 per cent.

However, Vitol’s London companies listed at Companies House record making only relatively small profits.

For example, Vitol Broking Limited says in its accounts for 2012 that it made a profit of just £2.8m. On that, it actually paid slightly more than the normal UK corporate tax rate, while its 49 staff are shown earning an average of just under £900,000 each. Its parent company in the UK, Vitol Services Limited, similarly paid full UK corporate taxes on its £9m profit.

Another division, Vitol London, admits in its Companies House accounts that its business is “trading in oil products” but it says it has not carried out any activity in 2011 or 2012 — the years covered by the accounts.

Several online CVs of the London executives at Vitol describe how they have had long careers as “traders” prior to joining the company, but apparently demote themselves to being mere “brokers” while at Vitol in London.

Some even turn back into “traders” when they leave Vitol for other companies.

In his online CV, Lee Goldsmith says he was an “oil trader” at Galaxy Energy before becoming an “LPG broker” at Vitol.

However, when contacted by The Independent, he said his LinkedIn profile must be wrong, and that he had always been a mere broker, adding: “I have never been a trader. I am an intermediary on behalf of Vitol Geneva.”

Others who describe their previous jobs as “traders” omit their job title altogether when they arrive at Vitol in London.

Vitol is Dutch-owned but Geneva-based and London is counted as a subsidiary office, like Singapore. The local offices are renowned for being run as independent units where decisions are made, sources said.

Internal accounts that were handed to The Independent for the Dutch holding company Vitol Holding BV also give an intriguing insight into the lavish hospitality for which the oil-trading industry is famed, saying the group’s employees spent $46.7m on “travel/entertainment/representative exp [sic]”.

Vitol did not comment on the specific tax structure in London when asked about what the traders said.

A Vitol spokesperson said: “Vitol is a global company with 38 offices worldwide. It has an open and transparent relationship with the tax authorities in all the jurisdictions in which it operates. These authorities are fully aware of how the business operates. Vitol pays the correct level of tax in accordance with the appropriate legislation in each of these jurisdictions.”

In 2012, Vitol reportedly had to pay HM Revenue & Customs to settle a claim for millions of pounds in taxes its senior staff allegedly avoided through an offshore pay scheme known as an employee benefit trust. This is said to have allowed employees to avoid paying income tax and companies to avoid national insurance contributions. Vitol denied the claim, saying its pay structures were “fully compliant with local taxregulations”.

Challenged about Mr Taylor’s donations to the Scottish “No” campaign and the Conservative Party, Vitol said: “Vitol makes no political donations. Any donations made by employees are on a personal basis.”

Profile: Ian Taylor

For decades Ian Taylor managed to stay out of the mainstream press.

While he would occasionally crop up in specialist energy publications commentating on obscure arguments about the direction of the oil price, his public profile, like that of Vitol, was extremely low.

That all changed in 2012, when it emerged that he was one of the Conservative Party donors who had been wined and dined by David Cameron at the flat above 11 Downing Street. He enjoyed the Prime Minister’s hospitality again last year at Chequers.

Also in 2013, a storm of criticism erupted in Scotland after it was revealed that he had donated £500,000 to the Better Together campaign. Not only did the donation mean nearly half of the entire “No” campaign’s budget was being funded by a man living in London, but a man running a company with a questionable past in Iraq, Iran and the former Yugoslavia.

Mr Taylor’s Better Together donation was made, he said, after a conversation with Alistair Darling, the former Chancellor and chief campaigner for the “No” vote, on the Isle of Lewis the previous autumn.

Born in 1956, the son of an ICI executive from Ayrshire, Mr Taylor describes himself as an ardent Scotsman, albeit one who strongly believes in the union. His political leanings are staunchly Conservative, hence his donations of at least £550,000 to the Tory party.

He has always been careful to cultivate political contacts, and hired Conservative energy ministry adviser Charles Hendry as a Vitol adviser earlier this year. Alan Duncan, until recently international development secretary, worked for Vitol in the 1990s.

Mr Taylor’s wealth is shrouded in mystery. The Sunday Times Rich List placed him at 631 with a value of £125m but the private nature of Vitol makes the exact figure difficult to establish.