When it came to his fleet of superyachts, the Russian oligarch Roman Abramovich was nothing if not generous.
As 2011 drew to a close, his biggest boat yet – the 162-metre (533ft) Eclipse – lay moored in the glittering waters of St Barts, the picturesque Caribbean island where billionaires like to gather to see in the new year.
Then the largest pleasure cruiser in the world, insured for €390m (£330m), the ship was all set to welcome guests for Abramovich’s own VIP celebration.
Perhaps arriving via one of the yacht’s two helipads, they could cool their toes in the onboard swimming pools, unwind in the whirlpool, or take in a film in the private cinema before heading to the disco lounge.
As evening fell, guests including Rupert Murdoch and the now disgraced film producer Harvey Weinstein assembled for a no-expenses-spared party. The star attraction? A private concert by the US rock band the Red Hot Chili Peppers, hired to play a set of at least 75 minutes for a cool $1m.
Abramovich had always been magnanimous with his yachts, documents show, welcoming guests including Chelsea football players Frank Lampard and John Terry, and the club’s manager José Mourinho.
While Abramovich lavished money on enjoying the high life onboard his boats, he appears to have been less forthcoming when it came to paying tax on their expenses.
Today, an investigation by the Guardian, the BBC, the Bureau of Investigative Journalism and international partners Der Spiegel and ZDF uncovers how an offshore scheme appears to have helped companies owned by the billionaire avoid duties potentially amounting to tens of millions of dollars.
Experts have said the arrangements could amount to deliberate tax evasion.
Details came to light thanks to documents contained in Cyprus Confidential, the largest ever leak of information from the Mediterranean island’s offshore financial industry.
The files show how offshore companies were used to create a fiction: that five of Abramovich’s superyachts were being hired out to customers for commercial purposes.
This allowed the boats’ operating companies to avoid paying VAT on a long list of expenses, such as the $2m-a-tank cost of refuelling the Eclipse. The files suggest VAT may have been due in Italy, Cyprus and a number of other EU countries.
Lawyers for Abramovich said he had always acted in accordance with professional tax advice and denied he had knowledge of or was personally responsible for any alleged tax evasion.
The yacht scheme
In April 2005, Abramovich was surfing a wave of success.
Chelsea FC were heading towards their first Premier League title, delivered on a plate by the staggering wealth of its free-spending new owner.
What’s more, he was on the verge of a landmark deal, the $13bn (£10.5bn) sale of his remaining stake in the oil and gas company Sibneft, to state-backed rival Gazprom.
Now, as the oligarch closed in on glory, his advisers were hard at work. Their focus was Blue Ocean Yacht Management, a Cyprus-based company set up in 2002 to manage Abramovich’s fleet of luxury yachts.
Specifically, their concern was tax.
Private vessels, such as luxury yachts, are subject to VAT on the goods and services they buy.
The sales tax is levied at about 20% across the European countries where Abramovich liked to weigh anchor, such as France, Italy and Greece.
The annual cost of running a superyacht is typically 10% of the purchase price, adding up to millions a year for crew, deck, engineering, fuel, maintenance and harbour expenses – with a hefty VAT bill to match.
That obligation, according to a leaked memo, was to be avoided.
The memo was written in June 2005 by Jonathan Holloway, a yacht management expert who had joined Blue Ocean as a director in March that year.
“We want to avoid paying VAT on the purchase price of the yachts and where possible to avoid paying VAT on goods and services provided to the yachts,” he wrote.
The solution was a structure that was as serpentine as it was ingenious.
Between 1999 and 2010, documents show, Abramovich’s superyachts were each owned by separate companies, all registered in the British Virgin Islands (BVI) and themselves owned by a Cyprus-based trust of which Abramovich was the beneficiary.
Under the VAT scheme, which lasted from 2005 until at least 2012, the boat-owning companies would lease their vessels to Blue Ocean Yacht Management, also ultimately owned by Abramovich, in exchange for millions of dollars a year.
Blue Ocean would recoup its costs by leasing the yachts out in turn for week-long “cruises”, generating income to cover maintenance, repairs, crewing and fuel.
Similar schemes are not uncommon among superyacht owners and tax can be avoided legitimately if there is genuine commercial activity.
The advisers duly registered Abramovich’s fleet as “passenger vessels”. But they weren’t being hired out to tourists on pleasure cruises.
The files suggest Blue Ocean’s only customers were a handful of BVI companies, all of which belonged to Abramovich himself. The oligarch was in effect renting his own boats.
‘We must go into this structure with open eyes’
The chief danger of such a scheme – that it would fall foul of the tax authorities – was flagged by Holloway in his 2005 memo, which he copied to a small group of senior figures in Abramovich’s team. At least one aide appears to have read the warning, because he later took part in email discussions about the tax implications of claiming commercial status on the yachts.
Alongside the plan’s stated objective, to avoid paying VAT, came a caveat: “We must all go into this structure with ‘open eyes’ and be aware of the risks,” he wrote.
“Our structure must as clearly as possible separate the different parties so that an investigator checking on our operation would see it as a legitimate structure.
“But we all have to recognise that a determined investigator could eventually discover this is an in-house structure with the possible consequences that would entail.”
Holloway advised that the companies in the scheme should have different shareholders, directors and addresses, warning that a “common link could be the first clue to make [anyone examining the structure] look deeper”.
The papers show agents for Abramovich, including Holloway, discussing their intention to avoid VAT on the entire price of the superyachts themselves, which could have amounted to tens of millions of euros. The files do not make clear whether they succeeded in doing so.
But savings from failing to pay VAT on goods and services alone were potentially enormous.
The cost of refuelling the Eclipse was between $1.5m and $2m, according to reports, implying a VAT bill of between $300,000 and $400,000 each time the tank was filled.
Between 2005 and 2012, accounts show, Blue Ocean recorded fuel costs of more than $15m.
Claiming VAT relief on such costs required more than just corporate architecture; it required paperwork.
Leasing a yacht on commercial terms would usually involve the signing of a “time charter” – in effect, a rental agreement.
An email sent by Holloway suggests Blue Ocean’s time charters were often not legitimate rental agreements but were instead tools to dodge VAT, manufactured after the fact.
“If we are going to try and claim duty-free fuel in the future we need to be able to produce signed time charters within 24 hours. We must investigate how this is possible,” he wrote in September 2005.
In an earlier memo, Holloway wrote: “We will make all efforts to ensure that where it is possible, the time charters raised coincide with the actual use of the yachts.”
But the time charters did not always correspond with real boat trips. Sometimes they gave a location for the cruise which – according to maritime traffic data – did not match the yacht’s actual location.
And, on more than 150 occasions, time charters appear to have been backdated after the cruise had supposedly taken place. In one case, a charter appeared to be backdated to buy VAT-free fuel on the French Riviera. The document saved Blue Ocean $44,000.
The apparent use of backdating means that the way the Blue Ocean scheme was implemented could amount to unlawful tax evasion, according to Rita de la Feria, a professor of tax law at Leeds University.
She said the Blue Ocean scheme “does look like an artificial structure in order to avoid paying the tax”.
“Whether it is avoidance or evasion depends on whether in essence the business in question misrepresented information or concealed information.
“Now, from the documents that I have seen […] it does appear that there was some misrepresentation. If there is a misrepresentation of information we are now passing the threshold from avoidance to evasion.”
Among Blue Ocean’s advisers on the VAT status of Abramovich’s yachts was one of the world’s most prestigious accounting firms: Deloitte.
Emails show that a director from the Deloitte Cyprus office was among the recipients of the original memo from Holloway, in 2005, outlining the yacht scheme.
That same year, the director joined MeritServus, a financial services provider formed via a management buyout led by Demetris Ioannides, who had founded Deloitte Cyprus, a local branch that is affiliated with, but not owned by, the global accounting firm.
Deloitte Cyprus said its affiliation with MeritServus ended at that point. However, both firms continued to work for Blue Ocean.
In 2006, Deloitte Cyprus sent a detailed memo to Holloway, confirming that the classification of the vessels – as commercial or private – was key to how Blue Ocean could “minimize any VAT exposure”.
A spokesperson for Deloitte Cyprus said: “We have always acted in compliance with applicable laws and regulations and continue to operate in line with relevant US, UK, EU and UN sanction regulations.”
There is no suggestion that Deloitte knew of the apparent backdating.
The authorities get wind
As sophisticated as the scheme was, authorities in Italy and Cyprus appear to have had serious doubts about the commercial status of Abramovich’s superyachts.
In 2015, Italian prosecutors in the northern port city of Trieste initiated proceedings against Blue Ocean in relation to more than €500,000 of allegedly unpaid duties on four refuelling events involving three yachts owned via the structure – the Eclipse, Pelorus and Luna – between 2009 and 2012.
The captains of the yachts were arrested and also faced prosecution.
Criminal charges were dropped after associates of Abramovich made representations to prosecutors, explaining that the yachts were being used for commercial purposes.
To the south-east, across the Mediterranean, the Cypriot authorities took matters a step further.
In 2012, Cypriot tax officials determined that Blue Ocean owed more than €14m in unpaid taxes for the period from December 2005 to August 2010.
The company, they said, had failed to prove that its yachts were being used for commercial purposes.
Blue Ocean fought the ruling and said it was “not in a position” to provide evidence about the activities of the companies to whom it leased the vessels.
Those third parties were, the evidence suggests, simply related companies within the Abramovich yacht scheme.
Blue Ocean continued the legal fight, without success, for more than a decade, until the Cyprus supreme court dismissed its appeal in March 2024.
At a hearing, the company’s lawyer said they had “lost contact” with their client. The company was dissolved last year.
Asked whether Blue Ocean ever paid the tax bill that Cyprus determined was due, lawyers for Abramovich did not comment.
They said he had always obtained independent expert professional tax and legal advice in respect of his tax affairs and acted in accordance with that advice.
In relation to the entities referred to, they said Abramovich expected similar advice was sought by those with responsibility for their day to day running.
They said he denies any allegation that he had, or ought to have had, any knowledge of, is personally responsible for and/or is personally liable for any alleged deception of any government authority in order to evade payment of taxes which were lawfully due or for any other purpose.
Holloway declined to comment.
Additional reporting by Eleanor Rose and Ed Siddons
