HMRC Wins Film Investment Scheme Court Case

25 Apr

Over the years there have been schemes seen as aggressive by HMRC and their opinion being this is abuse of the legislation – to create an unfair tax benefit.

The purpose of saving tax is central but how we do this is the question.

This is just the first round – round 1 to HMRC. Although the implication is huge as if this case is not overturned at appeal then convention has been created. This could block all similar schemes in the future but for now this is just an opinion rather than fact. We will wait for the battle through the courts for the legal opinion and outcome.

With tax planning care must be taken as to the risks, aggressiveness and likelihood of success. In most financial/tax planning, my starting point are government backed arrangements and those where standards of practice are in place with HMRC i.e. non-contentious.

This case, with a HM Revenue & Customs court victory could see an end to film investment schemes set up to exploit generous tax reliefs.

This case involved a scheme called Eclipse 35. The scheme was funded by a £790m loan by Barclays to Eclipse 35 with the investors adding a further £50m. Eclipse 35 then paid £503m to Disney for the worldwide rights to two films, Enchanted and Underdog.

Eclipse 35 paid £44m in fees to the organisers of the scheme, Future Capital Partners before paying Barclays £293m for the first ten years of interest payments on its £790m loan.

Eclipse 35 then re-licensed the rights to the films back to Disney, anticipating a return of £1.022bn over 20 years before intending to claim tax relief of £117m from the Revenue for the £293m interest paid back to Barclays.

Disney was also paid £6m for its participation in the scheme.

HMRC argued the scheme was no more than a way of offering investors a large amount of tax relief rather than carrying out any trading or group business. The court was also told that all 40 Eclipse film schemes are being investigated by HMRC.

An Eclipse 35 spokesman said: “We maintain that this investment is very much a commercial opportunity. We are disappointed with the decision and intend to vigorously appeal it.”

Such vehicles have seen billions of pounds invested since 2004 and although rules around investment in them have been tightened, some schemes remain under HMRC inquiry.

We await the court proceedings.

Any concerns or issues around investment related tax planning, tax planning through investments or similar matters just ask :-

Email, tel (office) 029 2020 1241

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