Sanzar Partnership? New IOM company

[ASB]

If a Manx company controlled by you was between the payment and yourself, and that company never issued dividends to you personally, you might get away with it. But then you'd never get your hands on the cash unless you travelled abroad and became non tax resident when dividends were finally declared.)

Even that may not work. If you are a director (or have the powers of one - and this is almost certainly the case) HMRC can declare the company UK tax resident and tax. Whther they can actually force the collection of the tax is a different matter for similar reasons related to the NI issue described above but they could certainly attack the shadow director personally.

[Sanzar]

The Sanzar Partnership - msg from the MD

Hi
My name is Paul Mihailovits, I am the Managing Director of The Sanzar Partnership in the Isle of Man. As The Sanzar Partnership is being discussed here, I thought I should respond to try to clear up some of the general misconceptions that exist.

I’ll try to share my personal opinion on some of the points I noticed raised here
• General IOM misconceptions like being ‘dodgy’
• Other Schemes and the Special Investigations unit of HMRC
• Permanent Establishment
• IR35 regulations and Managed Service Company (MSC) Legislation
• Being investigated and Insurance against this
• Declaring a share of profits & tax credits against any UK tax payable

Hopefully I can clear up some of the pre-conceptions people might have & also distance The Sanzar Partnership from those ‘dodgy’ entities that people worry about.

General IOM misconceptions like being ‘dodgy’
Financial Regulation
The Financial Supervision Commission http://www.gov.im/fsc licenses & supervises all banks, investment businesses, collective investment schemes and building societies. The FSC is also responsible for the companies’ registry and has introduced a regulatory regime for corporate services providers. The IOM is heavily regulated, for example with particular recent focus on Anti-Money Laundering. All this means overall, that the IOM is probably more heavily regulated than the UK.

‘Dodgy’
Some of us may have heard horror stories or heard 3rd hand about someone having been involved in something dodgy in the IOM. The truth is that there are legitimate ways of doing business in the IOM that make excellent use of the Double Tax Treaty. The IOM has legitimate trade in excess of £Billion per annum and most high street Banks have a presence here. My personal view is that the regulations change regularly and to keep up with these changes takes vigilence, time & money. I know that there are some Tax Avoidance Schemes that at one time were operating according to the interpretation of the law at that time, but as individual cases come before the courts & legal precedents are set or HMRC rules change, they have not kept abreast of these developments, so are now operating what I might personally interpret as in an ‘unsafe’ or ‘at risk’ way.

One example could be interpreted around the use of Employee Benefit Trusts (EBT's) in the IOM.

Other Schemes and the Special Investigations unit of HMRC (Anti-Avoidance Group)
There are some other companies who operate schemes utilising EBT's. Essentially, you contract through their company and it loans you back your money. This being an example of a Tax Avoidance Scheme that the company has registered with HMRC (receiving a Scheme Number). There are some variations in detail, but I shall generalise for ease.

In my personal opinion, the problems with EBT's fall into 3 major categories:

1. Loans given out by the EBT to you the individual.
Briefly, I understand that the theory is that the tax loophole exposed by using an EBT tax avoidance scheme is that as it is a loan made payable to you, you do not have to pay tax on it in the UK. Gordon Brown, when Chancellor, created a task force to look into these specific Tax Avoidance Schemes.

See the HMRC website here for more information on HMRC’s view of EBT’s:
http://www.hmrc.gov.uk/practitioners...d-v-dextra.htm

2. It is a loan – what happens to the individual if the company wants their loan back?

I believe that some other companies utilizing EBT loans ask you to sign a legally binding Loan Agreement. Once signed, you have no legal recourse should they ask you to repay it. Statements like “We won’t ask you to repay it” or “we can’t imagine we would ask you to repay it” are likely. The truth is you have signed to say that you will repay the loan if asked.

3. A Benefit in Kind when the EBT closes, or if you leave it?

In my opinion, if the EBT should ever close or you leave it, what happens to the loan? Should the loan be written off by the Trustees, then it’s no longer a loan and the individual has therefore received a large chunk of money that hasn’t had tax paid on it? Cue HMRC knocking on the door. Similarly, if you leave the EBT for any reason, then how does the loan close down?

Our Senior Tax Counsel has advised The Sanzar Partnership at length how to structure our Partnership and Trust so that it conforms legally to the Treaty and does not expose employees to any of the risks mentioned above. We do not employ the use of EBT’s or loans and as such we are not designated as a Tax Avoidance Scheme.

Permanent Establishment
The term ‘Permanent Establishment’ is a key tenant of the Double Tax Treaty and in our Tax Counsel's opinion, a significant area where we have excelled and some other companies might be at serious risk.

The interpretation of this is that the employer MUST NOT have a permanent establishment in the UK. If the contractor is employed in the UK, by a UK company and monies are sent ‘offshore’ then quite rightly HMRC will come after all of that income as being earned and paid to a UK company. Obviously, this will be taxed in the UK.

The Sanzar Partnership does not have, nor ever will have ANY establishment in the UK, either by presence or indirect agency. All of our employees (not partners) work directly for The Sanzar Partnership, an IOM based company and therefore we do not fall foul of the Permanent Establishment rule.

IR35 regulations and Managed Service Company (MSC) Legislation
I’d like to clear up some inaccurate opinions posted here about us. Because The Sanzar Partnership is an employment business and as an individual becomes an employee of the company, the IR35 status of the contract becomes irrelevant. To be precise, individuals are NOT partners of a partnership, they are employees (in the very real sense) of The Sanzar Partnership.

Additionally, as the Sanzar Partnership is NOT a Limited company, we therefore do not fall within the reaches of the MSC Legislation which came about in 2007. This is something that many agencies are asking us about and something we can satisfactorily answer.

Being investigated and Insurance against this
There seems to be a lot of misplaced fear about ‘investigations’. HMRC perform 200,000 business and 80,000 individual investigations per annum. HMRC investigates contractors who have been operating their Limited Companies incorrectly, Umbrella Companies who have untenable Expense Policies, it investigates offshore schemes that are utilising ‘old’ legislative solutions and it also investigates legitimate scenarios too.

It would be wrong of me to imagine that current or future employees of The Sanzar Partnership might not be investigated, as I have no idea what their current, previous history or personal circumstances are? However, what I can say is that should an individual be investigated as a direct result of being in the employ of The Sanzar Partnership, then we would indeed support that individual throughout, and if that led to court action, we would indeed continue to support that individual. Obviously, I would assume that such action by HMRC would threaten our way of operating and hence we’d be committed to resolving positively.

I’d like to point out that our Senior Tax Counsel is a leading QC in international tax matters, and the majority of his case load is spent representing the Inland Revenue. If matters were ever to end at the high court, our QC would be fighting our corner against the Revenue, something that should give great comfort.

Finally, we are in the process of completing the purchase of an Insurance policy, underwritten by Lloyds of London that would cover us and any individual to the value of £1m. We expect this to be in place soon, as belt and braces to reinforce our affirmation of support.

Declaring a share of profits and tax credits against any UK tax payable
Previously mentioned in the thread was an assumption that the share of the profit paid by The Sanzar Partnership is ‘immune from tax’. The reverse is true.
The share of profit is a share of the profit of an Isle of Man resident business. The profit of the partnership is therefore liable to tax in the Isle of Man but is considered exempt from UK Income Tax under paragraph 3(2) of the Double Tax Treaty (1955) between the Isle of Man and the UK. In reality this means that the tax paid in one jurisdiction is honoured and deemed paid in the other. The rate of taxation in the Isle of Man relevant to the Partnership's profit is 0%, but classified as tax paid nonetheless by HMRC in the UK.

Additionally, we help our employees complete the relevant sections of their self assessment tax returns that relates to monies received from The Sanzar Partnership. We have a ‘Tax Pack’ that is available, which describes how the tax forms are completed – with examples completed by our QC.

We also have a ‘Legal Pack’ that describes the due diligence that we performed in the many months prior to The Sanzar Partnership starting to trade.

Both of these packs are available to prospective employees, but we require individuals to sign a Non-Disclosure Agreement before we share these documents. The reason being that the documents expose Intellectual Property that is unique to The Sanzar Partnership that came about after investing a significant amount of time and money, so of course, we are a little sensitive to sharing this information with potential competitors

I hope the above has helped to clear up some of the issues discussed in this thread and the personal opinions I have expressed here are to my knowledge accurate and current. I’d be happy to answer other questions directly, so please contact me via our website that was mentioned in the first posting to this thread.

Regards,
Paul Mihailovits

[helen7]

And how do montpellier feel about you steeling there scheme? I heard they sued they last company that did this and won.

Incedently I am with Montpellier and the scheme has been under investigation since 2002.

My advice, steer clear if you want to sleep at night.

[ChimpMaster]

And how do montpellier feel about you steeling there scheme? I heard they sued they last company that did this and won.

Incedently I am with Montpellier and the scheme has been under investigation since 2002.

My advice, steer clear if you want to sleep at night.

Helen - just wondering - why are you still with Montpellier then? Have you personally been investigated yet due to this?

[Crossroads]

Is this the same scheme as MTM?

Can MTM have legal claim over exploiting a loophole that is there for (in theory) anyone to exploit? I guess there is the argument that there is IP within what each organisation has set up, but how to prove the "theft"?

No further posts from Paul M though...shame, as I'd be interested to see your questions answered, and also these:

- Is the insurance policy now in place?
- How long would an employee of Sanzar be covered? If for example, you used Sanzar for 6 months or so, what if the taxman comes knocking 5 years later?
- How many people are employed by Sanzar (as consultants).

Yes, schemes such as these are high risk, but as long as you go into them with your eyes wide open then they can prove a useful tool for situations where Ltd co ownership is not desirable.

[tim123]

And how do montpellier feel about you steeling there scheme? I heard they sued they last company that did this and won.

Really,

How did they do this? business processes are not protectable in Europe.

tim

[nucastle]

Hi
My name is Paul Mihailovits, I am the Managing Director of The Sanzar Partnership in the Isle of Man. As The Sanzar Partnership is being discussed here, I thought I should respond to try to clear up some of the general misconceptions that exist.

I’ll try to share my personal opinion on some of the points I noticed raised here
• General IOM misconceptions like being ‘dodgy’
• Other Schemes and the Special Investigations unit of HMRC
• Permanent Establishment
• IR35 regulations and Managed Service Company (MSC) Legislation
• Being investigated and Insurance against this
• Declaring a share of profits & tax credits against any UK tax payable

Hopefully I can clear up some of the pre-conceptions people might have & also distance The Sanzar Partnership from those ‘dodgy’ entities that people worry about.

General IOM misconceptions like being ‘dodgy’
Financial Regulation
The Financial Supervision Commission http://www.gov.im/fsc licenses & supervises all banks, investment businesses, collective investment schemes and building societies. The FSC is also responsible for the companies’ registry and has introduced a regulatory regime for corporate services providers. The IOM is heavily regulated, for example with particular recent focus on Anti-Money Laundering. All this means overall, that the IOM is probably more heavily regulated than the UK.

‘Dodgy’
Some of us may have heard horror stories or heard 3rd hand about someone having been involved in something dodgy in the IOM. The truth is that there are legitimate ways of doing business in the IOM that make excellent use of the Double Tax Treaty. The IOM has legitimate trade in excess of £Billion per annum and most high street Banks have a presence here. My personal view is that the regulations change regularly and to keep up with these changes takes vigilence, time & money. I know that there are some Tax Avoidance Schemes that at one time were operating according to the interpretation of the law at that time, but as individual cases come before the courts & legal precedents are set or HMRC rules change, they have not kept abreast of these developments, so are now operating what I might personally interpret as in an ‘unsafe’ or ‘at risk’ way.

One example could be interpreted around the use of Employee Benefit Trusts (EBT's) in the IOM.

Other Schemes and the Special Investigations unit of HMRC (Anti-Avoidance Group)
There are some other companies who operate schemes utilising EBT's. Essentially, you contract through their company and it loans you back your money. This being an example of a Tax Avoidance Scheme that the company has registered with HMRC (receiving a Scheme Number). There are some variations in detail, but I shall generalise for ease.

In my personal opinion, the problems with EBT's fall into 3 major categories:

1. Loans given out by the EBT to you the individual.
Briefly, I understand that the theory is that the tax loophole exposed by using an EBT tax avoidance scheme is that as it is a loan made payable to you, you do not have to pay tax on it in the UK. Gordon Brown, when Chancellor, created a task force to look into these specific Tax Avoidance Schemes.

See the HMRC website here for more information on HMRC’s view of EBT’s:
http://www.hmrc.gov.uk/practitioners...d-v-dextra.htm

2. It is a loan – what happens to the individual if the company wants their loan back?

I believe that some other companies utilizing EBT loans ask you to sign a legally binding Loan Agreement. Once signed, you have no legal recourse should they ask you to repay it. Statements like “We won’t ask you to repay it” or “we can’t imagine we would ask you to repay it” are likely. The truth is you have signed to say that you will repay the loan if asked.

3. A Benefit in Kind when the EBT closes, or if you leave it?

In my opinion, if the EBT should ever close or you leave it, what happens to the loan? Should the loan be written off by the Trustees, then it’s no longer a loan and the individual has therefore received a large chunk of money that hasn’t had tax paid on it? Cue HMRC knocking on the door. Similarly, if you leave the EBT for any reason, then how does the loan close down?

Our Senior Tax Counsel has advised The Sanzar Partnership at length how to structure our Partnership and Trust so that it conforms legally to the Treaty and does not expose employees to any of the risks mentioned above. We do not employ the use of EBT’s or loans and as such we are not designated as a Tax Avoidance Scheme.

Permanent Establishment
The term ‘Permanent Establishment’ is a key tenant of the Double Tax Treaty and in our Tax Counsel's opinion, a significant area where we have excelled and some other companies might be at serious risk.

The interpretation of this is that the employer MUST NOT have a permanent establishment in the UK. If the contractor is employed in the UK, by a UK company and monies are sent ‘offshore’ then quite rightly HMRC will come after all of that income as being earned and paid to a UK company. Obviously, this will be taxed in the UK.

The Sanzar Partnership does not have, nor ever will have ANY establishment in the UK, either by presence or indirect agency. All of our employees (not partners) work directly for The Sanzar Partnership, an IOM based company and therefore we do not fall foul of the Permanent Establishment rule.

IR35 regulations and Managed Service Company (MSC) Legislation
I’d like to clear up some inaccurate opinions posted here about us. Because The Sanzar Partnership is an employment business and as an individual becomes an employee of the company, the IR35 status of the contract becomes irrelevant. To be precise, individuals are NOT partners of a partnership, they are employees (in the very real sense) of The Sanzar Partnership.

Additionally, as the Sanzar Partnership is NOT a Limited company, we therefore do not fall within the reaches of the MSC Legislation which came about in 2007. This is something that many agencies are asking us about and something we can satisfactorily answer.

Being investigated and Insurance against this
There seems to be a lot of misplaced fear about ‘investigations’. HMRC perform 200,000 business and 80,000 individual investigations per annum. HMRC investigates contractors who have been operating their Limited Companies incorrectly, Umbrella Companies who have untenable Expense Policies, it investigates offshore schemes that are utilising ‘old’ legislative solutions and it also investigates legitimate scenarios too.

It would be wrong of me to imagine that current or future employees of The Sanzar Partnership might not be investigated, as I have no idea what their current, previous history or personal circumstances are? However, what I can say is that should an individual be investigated as a direct result of being in the employ of The Sanzar Partnership, then we would indeed support that individual throughout, and if that led to court action, we would indeed continue to support that individual. Obviously, I would assume that such action by HMRC would threaten our way of operating and hence we’d be committed to resolving positively.

I’d like to point out that our Senior Tax Counsel is a leading QC in international tax matters, and the majority of his case load is spent representing the Inland Revenue. If matters were ever to end at the high court, our QC would be fighting our corner against the Revenue, something that should give great comfort.

Finally, we are in the process of completing the purchase of an Insurance policy, underwritten by Lloyds of London that would cover us and any individual to the value of £1m. We expect this to be in place soon, as belt and braces to reinforce our affirmation of support.

Declaring a share of profits and tax credits against any UK tax payable
Previously mentioned in the thread was an assumption that the share of the profit paid by The Sanzar Partnership is ‘immune from tax’. The reverse is true.
The share of profit is a share of the profit of an Isle of Man resident business. The profit of the partnership is therefore liable to tax in the Isle of Man but is considered exempt from UK Income Tax under paragraph 3(2) of the Double Tax Treaty (1955) between the Isle of Man and the UK. In reality this means that the tax paid in one jurisdiction is honoured and deemed paid in the other. The rate of taxation in the Isle of Man relevant to the Partnership's profit is 0%, but classified as tax paid nonetheless by HMRC in the UK.

Additionally, we help our employees complete the relevant sections of their self assessment tax returns that relates to monies received from The Sanzar Partnership. We have a ‘Tax Pack’ that is available, which describes how the tax forms are completed – with examples completed by our QC.

We also have a ‘Legal Pack’ that describes the due diligence that we performed in the many months prior to The Sanzar Partnership starting to trade.

Both of these packs are available to prospective employees, but we require individuals to sign a Non-Disclosure Agreement before we share these documents. The reason being that the documents expose Intellectual Property that is unique to The Sanzar Partnership that came about after investing a significant amount of time and money, so of course, we are a little sensitive to sharing this information with potential competitors

I hope the above has helped to clear up some of the issues discussed in this thread and the personal opinions I have expressed here are to my knowledge accurate and current. I’d be happy to answer other questions directly, so please contact me via our website that was mentioned in the first posting to this thread.

Regards,
Paul Mihailovits

So does anyone use this company at all?

[ChimpMaster]

So does anyone use this company at all?

Well they've got a flashy website so I would guess that they have lots of "employees"

Oh and their fees come out at about 14%

[TheFaQQer]

And how do montpellier feel about you steeling there scheme? I heard they sued they last company that did this and won.

Incedently I am with Montpellier and the scheme has been under investigation since 2002.

My advice, steer clear if you want to sleep at night.

stealing
Incidentally

I find the first claim somewhat hard to believe - any reference for this, or is it "mere marketing puff" put about by Montpellier to stop others trying?

I'm not sure I'd still be with them, if I'd had 5 years of sleepless nights. That said, I'm pretty sure I'd be dead after 5 years of sleepless nights...

[Grim Reaper]

Helen,
I was with MTM in 2005/06 but had so many issues with payments being lost, late with them not returning calls etc, I moved to another scheme. In fact I was so curious about the poor service that I banked 40% of the payments in case I had to pay it back.
Cue 2007, I have just had a HMRC letter saying that I have been targeted for an investigation.
So what is your current situation ? Did MTM back you or offer to cover costs etc ?