Supreme court rejects Eclipse film appeal
Britain’s Supreme Court has rejected a multimillion pound legal appeal case brought by Eclipse Film partners against HMRC over a film scheme.
Although Eclipse film partners (No35) claimed to trade in film rights, this verdict upholds the Court of Appeal’s ruling in 2015 that it was a tax avoidance scheme. David Gauke, Financial Secretary to the Treasury, called today’s ruling an “important victory for HMRC”, which HMRC says has protected £635m in tax.
HMRC said that the scheme operated by acquiring the rights to Disney films (Enchanted and Underdog) and then sub-leasing them back to a different Disney entity for a guaranteed income stream.
Almost 300 investors, including Sir Alex Ferguson and Sven-Göran Eriksson, poured money into the scheme. If it had worked, members could have enjoyed an average of more than £400,000 in tax relief on a personal investment of £173,000.
Film schemes aimed at avoiding tax are an example of unintended consequences of changes to the tax system. In 2005 the Labour Government announced tax breaks for low- and large-budget British films. Under the legislation, introduced in 2006, tax relief would fund 20% of production costs for British films with budgets up to £20m.
But after claims that the schemes were being abused to avoid tax, many of the large ones have been challenged by HMRC and its investors charged with cheating the Revenue.
Jolyon Maugham, a barrister involved in film scheme appeals, told the FT before the verdict. “There is a lot of political pressure on the government and the Revenue to extend the net of criminality to tax avoiders and it is helping to make HMRC much punchier about alleging fraud.”
Commenting after the Supreme court’s ruling, Jennie Granger, Director General of Enforcement and Compliance, HM Revenue and Customs, said: “I’m delighted that the Supreme Court has confirmed the decision of the Court of Appeal in dismissing this case going any further. This is a fantastic victory for HMRC. It has significant ramifications for the 31 other Eclipse schemes and beyond.
“It just proves that tax avoidance doesn’t pay and highlights the danger that people face in getting involved in these schemes, which can see investors in a worse position than if they had not entered the avoidance scheme in the first place.”