HMRC victorious in Supreme Court film tax battle
Supreme Court rules in favour of taxman over long-running Eclipse 35 tax avoidance scheme
TAX AVOIDANCE scheme Eclipse 35 has lost its Supreme Court battle with HMRC over the use of its film partnership scheme, potentially costing its high-value clients thousands in legal fees.
The Supreme Court rejected Eclipse’s claim that its film investment scheme was a trading venture rather than an investment one. This ruling marks the end of Eclipse’s four-year legal tussle with the taxman over the scheme.
In 2012, HMRC won a court case to prevent the investment partnership from claiming £117m in tax reliefs.
Had the deal been successful, the 289 investors in the scheme would have received approximately £400,000 in reliefs.
The Eclipse 35 partnership involved ex-Manchester United boss Sir Alex Ferguson, former England and former Leicester City manager Sven-Göran Eriksson and 287 others, as it looked to claim tax relief on a £1bn film deal with Disney.
The partnership borrowed £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.
Last year the scheme was shut down by the Court of Appeal, with Lord Justice Vos ruling that the scheme was not commercially trading with a view to making a profit. The ruling forced investors into paying legal bills which were “greatly in excess” of their investment.
This ruling may set a precedent for other film schemes that take on HMRC in the courts.
In February, it was revealed that bailed-out bank RBS gained over £1bn in tax breaks from investments it made in the UK film industry, with company filings revealing that the bank owns the rights to multiple Hollywood blockbusters, including Batman Begins, Troy and two films in the Harry Potter series.