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HMRC Scores Another Win Against Film Tax Avoidance Scheme

Tuesday, December 5, 2017

The UK tax authority, HM Revenue and Customs, has announced another victory against a tax avoidance film scheme, with a new ruling worth GBP44m (USD59.2m).

The latest win comes after the UK's Supreme Court ruled in favor of HMRC in a similar case on November 15. That decision – HMRC v. De Silva and another ([2016] EWCA Civ 40) – was said to have safeguarded over a billion pounds by blocking a significant number of related schemes that use legitimate investment in the film industry as a hook to generate artificial losses to set against investors' tax liability.

The latest ruling was against a tax scheme promoted by Goldcrest Pictures Ltd, which is behind box office hits such as Twilight, Gandhi, and Chariots of Fire. It had sold film rights to 21 investors.

According to HMRC, the purpose of the scheme was to create artificial losses from the sale of film rights so scheme users could reduce their tax bills.

The win came after the scheme, used by Patrick Degorce, a wealthy hedge fund manager, was defeated at the Court of Appeal.

Penny Ciniewicz, Director General of HMRC's Customer Compliance Group, said: "The majority of people play by the rules and pay their fair share of tax. We will not allow a small minority of tax avoiders to get away with not paying their fair share, which deprives vital public services of the funding they need."

Degorce paid the inflated price of GBP22m for the rights of two Paramount Picture films, Tropic Thunder and The Love Guru, although he only paid GBP4.8m of his own money, with the rest provided in the form of a loan through Paramount Pictures. He then sold the rights back to Goldcrest Pictures on the same day for a fraction of the price.

By claiming the difference as a trading loss, he was able to offset the manufactured GBP19m loss against his hedge fund income in an attempt to pay zero tax in his 2006-07 tax return.

HMRC successfully argued that this did not amount to trading, and protected GBP7.5m of taxpayer money in this case, and GBP36.1m in related cases.

Since the Goldcrest scheme was implemented, anti-avoidance legislation has been enacted to prevent the use of similar schemes in the future.