INVESTORS in the Eclipse 35 film partnership face tax bills “greatly in excess” of their investment after the scheme was shut down by the Court of Appeal.
HM Revenue & Customs claims around £635m of public funds has been protected following the structure’s defeat.
The scheme was first used in 2006/07 and counted former Manchester United boss Sir Alex Ferguson and former England and Leicester City manager Sven-Göran Eriksson among its 287 partners.
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, both starring Amy Adams [pictured].
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.
Martin Taylor, head of client relations at Rebus Investment Solutions – which acts for those involved in tax avoidance schemes – said the error “has been made by those who created the structures of the partnership, but the pain will be visited on individuals”.
“In our opinion this decision now sets the tone for all future litigation relating to tax avoidance schemes, whether actual or perceived,” he said. “It is a watershed moment as an indicator as to how the courts are likely to consider these schemes in the future.”
Financial secretary to the Treasury David Gauke said: “These schemes, which were all too common in the mid-2000s, are an affront to the vast majority of businesses and people who pay what they owe.
“The government has invested £1bn into HMRC to track down and challenge tax dodgers and they will continue to pursue the minority who do not play by the rules.”
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