Bands on the run

The Rolling Stones unplugged a UK tour for tax reasons. Will others follow? Cliff Dane writes

EVER SINCE the first British pop music explosion in the 1960s, the financial fortunes of the UK's leading singers and bands have depended critically on overseas markets rather than going gold at home.

UK music sales account for just 7 per cent of the world total. Performers like Elton John, Rod Stewart, the Rolling Stones - even the Spice Girls - probably earn over 80 per cent of their income overseas. This has yielded considerable opportunities for tax planning, although being big in Japan is not quite so critical now that the top rate of personal income tax is 40 per cent as opposed to past rates of 83 per cent or even 99 per cent.

Still, increasingly sophisticated strategies have evolved to help UK rock stars break free from the basic tax premise that individuals resident in the UK are taxable on their entire worldwide income. With the right advice and a well-organised rhythm of touring and residence, rich Britrockers can't complain, as the Kinks did in 1967 in "Sunny Afternoon", that the taxman's "taken all my dough" or, like the Beatles in 1966's "Taxman", that "should 5 per cent appear too small, be thankful I don't take it all".

The furore this week over the news that the Rolling Stones had unplugged their UK tour this summer has highlighted the role of tax considerations in rock stars' lives. Specifically, the decision seems to hinge on the Government's decision to pull the plug on one particular tax concession, the so-called Foreign Earnings Deduction (FED), from 17 March this year.

The FED made it possible for stars to live in the UK most of the time but to gain exemption from UK taxes on overseas income in particular years provided - putting it simply - that they did not spend more than 62 days in the country. This fitted perfectly with the typical work pattern of some major world stars who produced albums and tours every three to four years, as they could determine with some precision when large chunks of income would arise.

If this touring and recording tempo can't be achieved, musicians have other ways to escape the British taxman. One has been to establish non- resident status, which typically involves working full-time abroad for a period which includes a complete tax year. More dramatic is to quit the country permanently by changing one's country of domicile and having one's "real" home elsewhere in a more harmonious tax regime.

All these schemes tend to include mechanisms whereby non-UK earnings are channelled into territories with low tax rates, especially tax havens such as the Bahamas, parts of Switzerland or the Channel Islands.

Given the secrecy surrounding offshore tax havens and the understandable reluctance of our chart-toppers to admit that they may pay little UK tax, one cannot with any real accuracy name the artists who benefit from tax schemes which are not available to the record-buying public.

Research into the published accounts of over 100 leading UK rock stars, contained in Rock Accounts 1998 and previous editions, reveals that some artists have overseas companies linked to their UK corporate structures. Thus Eric Clapton's main UK group contains a company registered in Jersey, Drumlin Ltd, engaged in touring and recording. Ringo Starr's interests appear to include a company, Devon Holdings Ltd, in the Bahamas, and UB40's main UK company has paid very substantial sums to Breanjam Ltd in Guernsey.

Other performers whose UK accounts disclose the existence of corporations in offshore areas include Duran Duran (Jersey) and Brian Eno (Jersey). For many years Queen maintained a studio in Switzerland. No definitive evidence of the Rolling Stones' corporate structure appears to exist in the public domain. However, they do operate via a number of Dutch companies, such as Musidor Bv, Promopub Bv and Promotone Bv: the Netherlands is notable for its lenient tax treatment of royalty streams.

It is also commonplace for artists to set up separate UK limited companies to handle their UK and overseas income to clarify the distinction for tax purposes. Roger Waters of Pink Floyd operates via two main limited companies, Roger Waters Music UK Ltd and Roger Waters Music Overseas Ltd. Traditionally Elton John has channelled his income from the UK into his William A Bong Ltd whilst directing the much greater overseas earnings into Happenstance Ltd and J Bondi Ltd.

Evidence of the use of exemptions to exclude vast incomes from UK taxation was also given in two of rock's major court battles. The George Michael v Sony case revealed that Sony had accelerated payments of advances to Michael so that they fell into his "year out".

In the case against Sting's accountant Keith Moore in 1995, it was reported that Moore had secured an agreement with the Inland Revenue exempting pounds 12m of income from UK tax. However, evidence in the case suggested that Sting had over the previous 15 years paid over pounds 20m in tax.

There is also considerable evidence of artists moving to areas where they can enjoy particular tax benefits. Phil Collins, for example, recently moved to Switzerland - not just, one presumes, for the mountain air, - and Ireland has considerable attraction due to its tax concessions for creative artists. UK artists who have moved to Ireland include Elvis Costello, Lisa Stansfield and Joe Elliot of Def Leppard. Elliot, in a memorable interview for Q magazine some years ago, extolled the virtues of his new homeland by noting that by living there he was still able to fly over to Sheffield on a Saturday, have lunch with his dad and watch the football in the afternoon. Such flexibility is not available in many more traditional offshore centres like the Cayman Islands, though they can generally offer a more temperate climate.

The cancellation of the Stones' UK dates appears to be the first direct reaction to the end of the FED provisions. The new rulings could affect a few other stars' short-term plans, though this summer Elton John, the Spice Girls (minus Ginger, presumably), Van Morrison, Simple Minds and the Prodigy can still be seen in the UK.

Two earlier tax scares to rock performers - one relating to the taxation of US artists in concert in the UK, the other to Germans withholding tax - produced immediate predictions of doom for the live music industry, but both were resolved. History would suggest that despite the abolition of FED, not only will the UK's top international artists still release records and play live in the UK, but also that advisers will devise schemes to ensure they continue to pay tax on only a small part of their total income. So let's rock.