HSBC advised on film schemes designed to avoid tax

HSBC’s London office created and advised on some of the UK’s largest film-based tax avoidance schemes, including the Eclipse investment vehicles which were dealt a heavy blow this week when the largest of its partnerships, Eclipse 35, was defeated in the Court of Appeal.

Between them, the schemes were worth about £1bn and were licenced to finance companies, which then sold them onto investors. Overall, HSBC received around £10m for the structures, The Times has revealed.

The Eclipse 35 scheme, which risked around £625m in tax, saw the partnership borrow £790m from Barclays and its members before contributing £50m of the partnership’s funds; about £173,000 individually. Just over £500m of that cash was then paid to Disney as investments in the films Enchanted and Underdog.

Some £293m was then paid back to Barclays for a decade’s worth of interest payments on its original loan, licensing the rights to the films back to Disney.

Had the deal been successful, the investors in the scheme would have each been in line for approximately £400,000 in tax reliefs on their £173,000 investment. It’s now estimated those who put money into the scheme face repayments between four and six times their original stake.

But Lord Justice Vos in the Court of Appeal ruled the scheme was not commercially trading with a view to making a profit and as such constituted a tax avoidance scheme.

According to The Times, HSBC licenced Eclipse to Future Capital Partners, a Mayfair-based investment firm, and began marketing it in 2006.

HSBC said in a statement that it was “involved with film finance partnerships in the past”, but added it had “ceased in 2009 following the introduction of the UK code of practice on taxation for banks”.

Future Capital said the affairs of its partnerships are “confidential” and that it has “no authority to discuss them or any of the individuals involved”.

The news is just the latest in a litany of blows to the bank, since it emerged that its Swiss arm facilitated and allegedly advised on tax evasion activities of as many as 100,000 foreign clients, including more than 6,000 British customers.

The data exposing the scandal was originally stolen from HSBC’s Geneva office in 2007.

Following the revelations, Swiss prosecutors raided Geneva as part of a criminal enquiry into its conduct.

A spokeswoman for the bank said it has “co-operated continuously with the Swiss authorities since first becoming aware of the data theft in 2008 and we continue to co-operate”.