Irish Yacht as a tax strategy

Irish businessmen have used their investment in a luxury yacht to cut their tax bills. Former owner Onassis would be proud
Ireland is awash with new money and much of it is being spent acquiring and financing some of the old moneyed world’s celebrated meeting points and trophy assets. The Sandy Lane hotel in Barbados is among the most prized possessions of Dermot Desmond, John Magnier and JP McManus; Derek Quinlan’s assault on Europe’s property market has seen him claim numerous scalps, including the regal Claridge’s; while a less well-known group of Irish investors has played a pivotal role in the restoration of the luxurious Christina O, the 325ft motor yacht once owned by Aristotle Onassis, where the young John F Kennedy was introduced to Winston Churchill.

Temporary home for Thabo Mbeki, the South African prime minister, during last year’s Athens Olympics, the Christina O is also a favourite relaxation spot for Ireland’s growing ranks of millionaires.

Sean Dunne, the developer who recently purchased a site in Ballsbridge from Jurys Doyle for a record-breaking €54m an acre, and the social diarist Gayle Killilea staged their wedding reception on the ship. And the banker Michael Fingleton, whose Irish Nationwide helped finance the boat’s refurbishment, has stayed on the Christina O during the Monaco Grand Prix.

Based in the Mediterranean and registered in Panama, the Christina O was refurbished through a partnership registered on a south Pacific island and is majority-owned by a Greek shipping magnate. But as it cruises around the Med in the summer or through the Caribbean in the winter, the Christina O, on hire for between $1m (€800,000) and $1.5m a fortnight, has been sucking cash out of the Irish exchequer. For a government intent on eliminating tax shelters, the Christina O is a monumental embarrassment.

DOCUMENTS seen by The Sunday Times show that earlier this year, following a High Court case, the Revenue Commissioners were forced to hand Robert “Pino” Harris, a truck dealer and property investor, a cheque for €9.1m after attempts to disallow tax breaks on his investment in the luxury yacht were knocked back on appeal.

The tax authorities are now trying to get the High Court to rule on the basis under which Harris and others claimed the controversial relief, and could yet seek repayment of the money. But as it stands, Harris and a number of other Irish taxpayers have managed to get millions of euros-worth of tax relief for fitting out what the American Academy of Hospitality Sciences calls the world’s “most prestigious luxury yacht”.

In May the Irish authorities moved to close off the loophole that allowed Harris and other wealthy individuals to substantially reduce their tax bills. But when the clampdown came it was accompanied by the familiar sound of doors being slammed long after the tax horse had bolted.

The precise details of ownership of the Christina O remain a mystery, but it is known that a number of individuals, including Harris, were instrumental in restoring the vessel to its former glory, at a cost of €50m. This investment was used to drastically cut their tax bills through an innovative use of the tax code.

Named Christina after his beloved only daughter, Aristotle Onassis purchased the vessel, a former Canadian naval frigate, in 1954 for $34,000 and promptly spent $4m refurbishing it. “You could smash up a $20,000 speedboat into pieces and not a word would be said, but spit on Christina’s deck and you were out of a job,” said a former Onassis employee.

Following the tycoon’s death in 1975, the ship was passed to his daughter and only heir. She donated the vessel to the Greek government as a presidential yacht, but it soon fell into disrepair. The ship appeared to have been salvaged when an American, Alexander Blastos, agreed to buy it for €2m in 1994. Blastos’ deposit cheque bounced, however, and it was 1998 before Greek shipping magnate John Paul Papanicolaou stepped in to buy the yacht.

Papanicolaou, who holidayed on the yacht as a child, renamed it Christina O, and set about finding the money to rebuild the yacht in a way that would have “awed Onassis himself”.

The search for funding led to Dublin’s Mount Street, and the offices of Ivor Fitzpatrick & Company, a leading solicitor’s firm that specialises in the area of tax planning.

Tax planning is often seen as a professional euphemism for tax avoidance, a legitimate means of reducing tax liabilities. The firm, and others like it throughout the world, earns a living by reducing the tax bills of wealthy clients. Often, in Ireland, this can involve marrying an investment proposal, such as the Christina O, with a weakness in the tax code.

According to Judge Income Tax, the leading legal publication in the area, section 1013 of the Consolidated Taxes Act 1997 is primarily “an anti-avoidance measure” designed to counteract schemes under which “partnership arrangements could be manipulated to create inflated tax losses . . . ”

The particular focus of the section is limited partnerships, an unusual corporate construct where the partners can limit their liability to a business failure. On three occasions in the past 20 years, the same section has been amended to tighten up the provisions and guard them against abuse. However, clever tax planners saw an opportunity.

“Anti-avoidance measures are the most fertile ground for tax planners because they are so general,” said one practitioner. “In truth, there has always been a cloud over the section.”

The gap in the legislation, in this case, was seized upon because the anti-avoidance measures did not stretch to cover offshore partnerships. Displaying a touch of nautical savvy, the limited partnership established to upgrade the Christina O was registered, appropriately enough, in the Cook Islands, an offshore Pacific tax haven.

Harris is one of a number of Irish residents who participated in the Christina Limited Partnership. To date, he is the only one to be identified.

Harris is the son of a Limerick scrap dealer. He earned his nickname because he loved pin-head oatmeal as a boy. Harris secured the Hino truck dealership in the 1980s and quickly established the Japanese marque as a market leader.

For many years, despite his rapidly accumulating wealth, he lived in two “knocked through” red-brick houses in the north Dublin suburb of Phibsboro with his mother. He now lives in Killiney, where his neighbours include the singer Enya, but he still displays a complete and utter distaste for ostentation.