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Shami avoids tax...by suing himself

Mail on Sunday
14 December 2003, 12:00am

A BIZARRE and complex attempt to avoid a hefty tax bill has been launched in which fashion mogul and Joe Bloggs jeans owner Shami Ahmed is being sued for hundreds of thousands of pounds...by Shami Ahmed.

The tangled plot, involving an offshore company, a £1 million loan at sky-high interest rates and legal claims and counter-claims, is designed to let Ahmed bring huge sums of cash into the UK while avoiding paying tax on this money.

The only public record of Ahmed's eccentric arrangements is a High Court writ filed by Champion Investments of the Isle of Man in which the company is suing Ahmed - citing his full name Eaitisham Ahmed - for non-payment of debts.

Financial Mail was unable to contact Champion, but sources close to Ahmed said he was the ultimate beneficiary of Champion, thanks to a series of offshore trusts.

In effect, Ahmed is suing himself. According to the writ filed in the High Court last month, Champion agreed a £1 million bridging loan to Ahmed in July.

The terms of the loan included exorbitant interest rates of 8% a month for the first month and 2.5% a week after that. The whole loan was due to be repaid by October 6.

Later, Champion agreed to extend the repayment date by two weeks but at a much higher rate of four% a week. The writ claims that Ahmed failed to repay £300,000 of the cash and owes interest. The total claim is for £391,000 with interest building up at an astonishing £1,714 a day - the equivalent of more than 200% a year. It is understood that Ahmed has countersued Champion for the same amount.

The final step in the scheme is expected to be an out-of-court settlement between Ahmed and Champion in which Ahmed makes a loss and writes off the sum against tax.

The complex scheme is thought to be necessary to provide the Inland Revenue with a legal settlement proving that there has been a loss in the UK.

A spokesman for the Inland Revenue refused to comment on the legality of any particular tax arrangements nor would he discuss individual tax avoidance schemes.

But the extraordinary legal claim sheds some light on Ahmed's otherwise mysterious finances.

Ahmed's access to cash has been the subject of wild speculation since he launched an unsuccessful bid to buy clothes retailer Moss Bros two years ago.

Ahmed controls a 22% stake in Moss Bros and 12% of rival menswear chain Austin Reed.

Held by his company, Legendary Investments, these are mostly highly complex contracts for difference (CFDs) with City broker Cantor Fitzgerald.

CFDs are betting contracts that give Ahmed the right to profits from major share price movements and control over the voting power of the shares.

But they do not amount to full ownership and require Ahmed to put down only a fraction of the cost of the real shares.

Ahmed's businesses began in the Eighties and since then he has dispersed much of his wealth overseasmaking the real state of his finances almost impossible to assess. But while Ahmed is a regular visitor at the exclusive Mayfair hotel, Claridge's, some critics have argued that he does not have the assets to match his reputation.

The impression of a man short of cash in the UK is compounded by latest figures from Legendary Investments. Results for the year to March 2003, filed last month, showed the group made a loss of £2.2 million. Last year it made a £1.9 million loss.

But as the legal web surrounding Champion's £1 million loan illustrates, the public face of Ahmed's finances is scarcely the complete picture.