Total Eclipse: film partnership might ruin dentists
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- Published: Tuesday, 27 December 2016 21:17
- Written by News Editor
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It has been reported in the recent press that a number of dentists may be being pursued by HMRC as well as celebrities, financiers and those from the world of sport including Sir Alex Ferguson and Sven Goran Erikkson, for up to 20 times their original investment in a film industry tax avoidance scheme.
The Eclipse 35 film partnership had been under challenge by HMRC for some time and had been regarded as a particularly aggressive scheme. The scheme worked by claiming tax relief on a huge loan used to invest in film distribution rights. Typically, members would invest around £60,000 each but then be allowed to claim back tax relief on the loan too. Eclipse 35 bought the worldwide distribution rights for the Disney films Enchanted and Underdog for £503 million. It then relicensed them back to Disney for £1.02 billion over a 20 year term. It was intended that this income would then pay back the original loan.
Due to very favourable tax rules for investments in the film industry in the mid 2000s, Eclipse 35 members then claimed tax relief on the interest payments on the loan; the loan created a large ‘loss’ for the partnership that they could offset against members’ individual tax liabilities. HMRC argued that Eclipse 35 never carried on a trade and merely organised a financial model. Although they bought and licensed the film rights legitimately, HMRC said that the deal was designed with the primary purpose of tax relief on debt interest payments.
Charles Linaker, Tax Partner at NASDAL member UNW said, “This does yet again illustrate the need for expert advice and perhaps the old saying, ‘if it looks too good to be true, it probably is’. There were a number of such avoidance schemes around at this time and hopefully this will see the end of any HMRC action. It may seem particularly harsh that the Eclipse 35 structure meant that the tax liability for members is now far greater than any initial investment.”
“Many of those who were aware that such an outcome was likely, took advantage of the Autumn Statement Settlement Opportunity (ASSO) announced in 2012 and which closed in February this year. The ASSO allowed individual partners/investors in film production partnerships (that sought to claim relief for expenditure incurred on the production of a qualifying British film under S.42 and 48 Finance Act (no2) 1992) the opportunity to settle their tax liabilities by agreement without the need for legal action, irrespective of whether or not the partnership itself accepted HM Revenue & Customs’ (HMRC’s) disputed position.”
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