Terry Baucher has a deep dive through history at some of the great tax adventures and misadventures involving musicians, entertainers and sports stars and the lessons we can learn from them

Terry Baucher has a deep dive through history at some of the great tax adventures and misadventures involving musicians, entertainers and sports stars and the lessons we can learn from them

This week’s Top 5 comes from Terry Baucher, director of tax advisory business Baucher Consulting.  

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 5 yourself, contact gareth.vaughan@interest.co.nz.

1966 and all that: The chequered history of entertainers, sports stars and tax

What have William Shakespeare, The Beatles, The Rolling Stones, U2, Norman Wisdom, Richard Burton, Boris Becker, Lionel Messi, Christian Ronaldo and Bobby Moore all got in common?  They are but a few of the many, very many, actors, entertainers and sports stars who have found themselves in trouble (sometimes bigly) with the taxman. 

One reason entertainers and sports stars run into money and tax problems so frequently is that they work in an industry where vast sums of money can be generated practically overnight from all around the world.  Consequently, musicians and bands probably have some of the most complex tax affairs outside of multinationals.  It’s therefore unsurprising many engage in elaborate tax planning and it’s equally unsurprising this sometimes comes unstuck with expensive consequences.

This Top Five looks at actors, musicians and footballers who left a tax legacy as well as an artistic one.  Moreover, these tax legacies remain highly relevant today.

1. “Know you of this taxation?” (Henry VIII).

Despite his colossal cultural legacy, we know very little about the real Shakespeare.  We do know that between 1597 and 1600 he appears in several rolls for the “lay subsidies” for the St Helen’s Bishopgate parish in London.  Lay subsidies were a form of local wealth tax on local householders.  The lay subsidy roll contained an estimate of a person’s wealth and the amount assessed.

It appears that in 1598 Shakespeare defaulted on his lay subsidy for the year of 13 shillings and four pence.  It’s not known whether this debt was ever paid but since about this time he bought into the Globe Playhouse for £70, he was surely not short of money.  This has led to much conjecture about whether Shakespeare was one of the first known tax avoiders of the entertainment industry.

Like so much else about the man, we’ll never know the truth about Shakespeare’s finances.  I can’t help but wonder if the quip in Henry VI “The first thing we do, let's kill all the lawyers" might reference some dud tax advice he received. 

2. From Abbey Road to Exile on Main Street.

It appears The Beatles were pioneers in tax planning for musicians.  Very early on in their career they were introduced to accountant Harry Pinsker who specialised in the entertainment area.  (Pinsker’s first reaction was that “they were just four scruffy boys”). 

One of Pinsker’s recommendations was a songwriting company Lenmac through which their earnings would be channelled.  He successfully argued the company’s income should be taxed as trading income rather than investment income which would have incurred higher taxes. 

Even so, the very high tax rates of the mid-60s (more than 90%) prompted George Harrison to write Taxman.  

“One, two, three, four, one, two

Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman”

Pinsker ultimately suggested the formation of Apple Records as a tax effective means of managing the band’s revenue.  His efforts did not go unnoticed by the Beatles.  During rehearsals of their final album Let it Be, the band started singing Harry Pinsker instead of Hare Krishna.

The Rolling Stones weren’t as well managed as The Beatles and in 1971, facing huge tax bills, they moved to the south of France where they recorded one of their greatest albums: Exile on Main Street. The title was a deliberate reference to their tax exile.  

Having also fallen out with Decca Records and their manager Allen Klein, the band took control of their affairs at this time by forming their own record company.  They also established a Netherlands company to shelter their income.  This started a trend which other bands including U2 would follow.

The Rolling Stones move into tax exile didn’t attract much criticism at the time, perhaps because the rates of tax they then faced were so high.  Forty years on attitudes have changed. 

U2 were in town recently and their tax practices have drawn increasing criticism.  Lead singer Bono has been accused of hypocrisy after he was linked to the Panama Papers.

In 2015 Bono and U2 were criticised for making changes to shift royalties through the Netherlands to take advantage of a special concession.  Now it appears this concession is ending.

If U2 still haven’t found the perfect tax structure they were looking for, The Rolling Stones should remind them “You can’t always get what you want.”

3. The slapstick clown with a tax lesson for crypto-asset investors.

The British comic Sir Norman Wisdom rose to fame in the 1950s playing a hapless but good-natured incompetent who somehow through a combination of slapstick humour and good fortune saves the day.

Contrary to his clownish on-screen character, Wisdom was a very shrewd investor, and this ultimately resulted in one of the more notable and still influential tax cases of the 1960s.

In 1961 Wisdom invested in silver ingots as a hedge against a possible devaluation of the British Pound, eventually realising a profit of £48,000 (about £800,000 today).  At a time of very high personal tax rates Wisdom claimed the profit was a tax free capital gain (the transaction occurred prior to the introduction of capital gains tax in Britain). 

Wisdom won in the High Court but in 1968 the Court of Appeal in Wisdom v Chamberlain (Inspector of Taxes) determined that the transaction was in the nature of trade and therefore taxable.  Wisdom paid the tax due and outraged by the high taxes then went into tax exile in the Isle of Man where he lived until his death in 2010.

His case is often cited when considering whether a transaction is of a revenue or capital nature.  In 2017 Inland Revenue cited it in a “Question We’ve Been Asked” on whether the proceeds of the sale of gold bullion would be income. (The short answer is almost certainly). 

Inland Revenue also consider some crypto-assets to have similar characteristics to bullion. It is therefore probably only a matter of time before some crypto-asset investors will need to acquaint themselves with Wisdom v Chamberlain and Norman Wisdom’s unwilling tax legacy.  

4. Gone for a Burton.

Richard Burton was probably too busy being one of the great actor hell-raisers of the 1960s to be paying attention to the price of silver bullion.  Yet, he too has left a tax legacy, one of particular relevance to many of the thousands of Britons currently living in New Zealand. 

Burton became a tax exile in the late 1950s after taxes had reduced his earnings of £82,000 for 1957 to £6,000.  (Allegedly he subsequently remarked "I believe that everyone should pay them [taxes] — except actors.")  Burton moved to Switzerland where he lived until his death in 1984.  

Burton was buried in Switzerland, apparently in a red suit together with a copy of Dylan Thomas’ poems.  However, many years earlier when he was married to Elizabeth Taylor, Burton had acquired two burial plots for himself and Taylor in the Welsh village where he had been born. And this proved extremely costly for Burton’s estate. 

Inland Revenue argued successfully that the presence of the burial plots together with his Welsh themed funeral meant that Burton had never lost his UK tax domicile.  Accordingly, his estate worth just over £4 million had to pay a total of £2.4 million in Inheritance Tax. 

In my view Inheritance Tax represents the greatest tax risk to anyone either born in the UK or who owns assets situated there.  The lesson from Richard Burton’s death is that Inheritance Tax could still apply many years after a person has left the UK.

5. England, One; HM Inspector of Taxes, Nil.

Today is the anniversary of when England won the Rugby World Cup in 2003.  In the wake of England’s unexpected defeat by South Africa I saw a perhaps rather too gleeful tweet asking if 2003 was destined to become English rugby’s equivalent of England’s sole football World Cup win in 1966. 

On the other hand, the RFU’s Treasurer possibly breathed a sigh of relief after the final as apparently the squad stood to win bonuses totalling over £6 million.  

Anyway, back in 1966 the English Football Association rewarded its world cup winning squad with £1,000 each.  (About £15,000 in current terms or only 30% of the English Premier League’s current AVERAGE weekly wage of £50,000).  Enter the Inland Revenue stage right in the form of HM Inspector of Taxes Mr Griffiths. He considered the amounts paid to England’s captain Bobby Moore and cup-final hat-trick hero Geoff Hurst were taxable as they formed part of their remuneration.

The case finally reached the High Court in 1972 where Mr Justice Brightman ruled the £1,000 payments were non-taxable as they had the “quality of a testimonial or accolade rather than the quality of remuneration for services rendered”.  A convincing one-nil win then. 

Other footballers haven’t fared so well against the taxman: Lionel Messi and Christian Ronaldo are unquestionably two of the greatest players of this generation, but their tax planning has not matched their sublime footballing skills.  In 2017 Messi had a 21-month jail sentence for tax fraud commuted to a fine. This was in addition to a voluntary €5m "corrective payment” he and his father had made in August 2013. Earlier this year Ronaldo was fined €18.8 million for tax evasion and given a suspended 23-month jail sentence.

5B. Beware the Ides of…November?

Finally, today, 22nd November, is also my father’s birthday.  It’s actually a pretty momentous, if not infamous, day in history.  Most notably in 1963 when President John F Kennedy was assassinated (with both Aldous Huxley and C.S. Lewis also dying on the same day the obituary writers had a very busy day).  Charles de Gaulle was born on this day in 1890 and Angela Merkel became German Chancellor in 2005. 

There’s a tax connection in convicted tax evader and serial tax exile Boris Becker who was born on this day in 1967 and the obligatory Kiwi connection is the death in 1982 of the pioneering aviator Jean Batten.

Lastly, Margaret Thatcher resigned on this day in 1990 (as a result of, you shouldn’t be surprised to hear, a Conservative Party split over Europe).  This was not only a pretty funny 60th birthday present for Dad but also something of a rich irony as he was a staunch Thatcher supporter.  Miss you Dad. 

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Death and taxes.......

But curiously while almost everyone rails against taxes, there seems to be very little discussion about how they are spent. We also complain long and loud about the quality of our politicians, but don't connect them to the expenditure of our hard earned taxes. They have made damn sure they are the first to feed from the trough, and the gullible Joe Public seems to accept that they are worth it!!!?

"there seems to be very little discussion about how they are spent. We also complain long and loud about the quality of our politicians, but don't connect them to the expenditure of our hard earned taxes."

I think maybe you've been living under a rock. The National party always talks about how frivolously the government / Labour party spends money and how they're going to cut down on waste and red tape. It never actually transpires though.

I think you are twisting what they say. They criticise projects and occasionally the cost, but mostly they never talk about the responsibility of what they do with tax payer funds.

Taxation is why being a 'Public Servant" such as a Government MP can can afford to invest in "Houses" far more than the average joker. The reason why Houses are non-taxable is obviously a tax dodge for these high and mighty, over paid, waste of space and dare I say it "Self Centred" individuals who are so keen on keeping their seats, (Actually paid for by Taxation), whilst everyone else has to actually....Bleedin Work.
That this is not apparent to why us incomers, are so necessary, to keep the ball rolling and 'Money Laundering" is an Aussie Bank Fraud-u-lent spectre from time immemorial is just why Aussie Banks skim and plunder to the best of their abilities and Land and Housing is their preferred hedge against loss, as Houses never go down in value, when they put all their eggs in one basket. Property gains, but only if those of us interested are taxed accordingly via GST and or Hikes in Petrol Taxes and Wages. That these are not enough to pay for infrastructure necessary for expansion is because the Houses of Commons is actually returning a rental income from un-commonly large Houses.....not withstanding the theft of the Land in the first place...Good old Aussies and Kiwis, must be so proud.....it is a never ending process. Tax Take...is a theft by design, by those who designed it. I could explain further....But I have some Work to do......
Have a great weekend...

Actually, in many cases houses are taxable! It's just that the owners, be they MP's, Teachers, Nurses, Policemen or just plain old Bleedin' Workers, lie about the nature of their investment on disposal. Tax ALL house price increase on EVERY occasion at the owner's marginal income tax rate, and that temptation to lie disappears.
Who knows; I haven't done the maths ( perhaps a job for Terry!), but that might even allow the marginal rates of taxation to fall!

Bw - I agree with you on 'Tax ALL house price increase on EVERY occasion ' . This was the problem for me with the CGT in that it did not go far enough and include EVERYONE in the net, all assets across all asset classes be it businesses, cars , private homes should have been in the CGT probably at a very reasonable rate perhaps 10 - 15 % as the taxable pool would have been massive.

another thing that the famous names have in common,they have never been tax resident in new zealand.our top tax rate is not astronomical as in the UK.we still have tax exiles who dont want to pay their share.sometimes the free pension and healthcare brings them home later in life.NZF did promise to increase the time you have to be resident to qualify but seem to have lost interest.

Thanks Terry, great article. My Dad passed away in Nov 22, he was born about 15 months before your Dad. Beware the Ides of Nov indeed.

Haha, doesn't Burton's comment on taxes just sum up celebrities in general.