As I looked through the Times Top Track 250 for 2011 I noticed a business called The Vestey Group.Precisely one hundred years ago in 1911, the Vestey family pioneered the use of refrigerated ships to transport egg products from China to the bakery trade in Britain, America and continental Europe. Today its main business, with operations in 17 countries, supplies seafood, dairy products and meat to the retail, hotel, restaurant and wholesale sectors. The group also owns cattle farms in South America and a luxury-food distribution business. The chairman, Lord Vestey, is the fourth generation of his family to run the company, which had sales of £541.2m in 2009.  

So why are the Vestey family so important when it comes to taxation? Well according to Nicholas Shaxson (a tax ‘campaigner’), in many ways they were the first business to ‘transfer price’ their goods between tax jurisdictions. This topic is covered by Nicholas Shaxson in his new book ‘Treasure Islands’. They worked very hard to make sure that the parts of their business that made the most profit were reported in the jurisdictions which had a limited or no tax rate to speak of.

For this reason the Argentinean government hunted high and low for the evidence that the Vestey Brothers were evading tax through less than honest means. The UK government were also less than impressed that the amount of UK tax compared to profits being reported by the Vestey Brothers was also very low. Sound familiar (when reading the papers today)?

To be fair to the Vestey Brothers (at least at this stage) what they had initially started out to achieve was to avoid double taxation. In the period in question double tax treaties between states did not exist. As a result the Vestey Brothers, who were doing significant business abroad, were being taxed in those foreign states, and again in the UK, but with no right of set off. Doing business abroad was expensive stuff with increasingly onerous tax rates to boot.

What followed was an attempt to avoid double taxation, but it is alleged this evolved into an ever increasing project to achieve ‘non taxation’. This was achieved by reporting the group profits in entities that were subject to the lowest rates of corporate income tax.

The Vesteys ran into trouble of various kinds over the years with the UK government, MPs and so on, and the impact of their transfer pricing plan dwindled and eventually they decided to move their homes ‘offshore’. However they wanted to return eventually and lobbied the government to change the law to their liking. This didn’t work and so they decided to come up with another strategy involving trusts.

The strategy was that they would settle their assets into trust. They would appoint a lawyer as trustee, and the beneficiaries would be the Vestey family. The Inland Revenue were told that the Vesteys had given their business assets away, but could not get the lawyer to break his client confidentiality around the beneficiaries. As a result the tax authorities had no idea who was getting what and who should be taxed. It took them eight years to unravel and even longer to get the right legislation enacted to counter the plan.

Today the law of trust, and the tax legislation that sits wrapped around it, has greatly developed and much of what the Vesteys did with their trust is now not possible. It is true to say however that the way in which some countries operate in terms of banking secrecy and the like enables trusts to continue to be used to shield tax authorities from the true underlying owner of assets and income streams.

The Vestey Group continues to profit and is successful – and the family trust still sits in place as the 100% owner of the business. You will also note that there is a Lord Vestey – not a recent thing either. The original brothers were made Lords by Lloyd George in 1922 – the same political issues even then you see!