U.K. Court Upholds Tax Authority Order on Film Investment Scam

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By Ben Stupples

The U.K. government’s tax avoidance claim against film investors, with at least $1 billion pounds at stake, was upheld by the Supreme Court, weeks after the government sidestepped claims against the tax agency worth 17 billion pounds.

The Nov. 15 ruling could “protect well over one billion pounds” that would have been at risk if the Supreme Court had ruled in favor of the investors, HMRC said in a Nov. 15 news release. It marks “another great success in HMRC’s drive against tax avoidance,” Jim Harra, HMRC’s director general for customer strategy, added.

The U.K.’s top court dismissed an appeal from investors that Her Majesty’s Revenue and Customs wrongly challenged them on a U.K. film partnership scheme designed for tax avoidance.

The judgment comes two weeks after the Supreme Court ruled that HMRC wouldn’t have to pay U.K. home-shopping company Littlewoods 1.3 billion pounds ($1.7 billion) in interest payments from a value-added tax refund. The Littlewoods verdict affected 5,000 claimants in similar U.K. VAT disputes, calculated by HMRC to be worth 17 billion pounds, according to the Supreme Court’s Nov. 1 judgment.

Film Industry Losses

In the latest case, dating to 2003, investors exploited legitimate tax relief to encourage putting money into the film industry. By building up losses, the investors could cut their taxable income.

The two claimants, referred to as “Mr. De Silva” and “Mr. Dokelman,” challenged HMRC on a technical point over whether the tax authority was entitled to challenge them under the Taxes Management Act 1970. While HMRC sought reduced repayment from Dokelman after reaching an agreement in 2011, HMRC informed De Silva in the same year that he had to pay an extra 17 million pounds.

HMRC’s decision-making over the challenge was “lawful,” judge Patrick Hodge said Nov. 15.

In an email to Bloomberg Tax, lawyers for the two claimants declined to comment.

Investing in Enterprise

According to the judgment, the managing member of the group of limited partnerships that invested in the film industry tax avoidance scheme, Investing in Enterprise Ltd., invested in the 2003 film “Bollywood Queen” that starred James McAvoy, nominated five years later for a Golden Globe for his role in “Atonement,” according to the British Film Institute.

The previous year, Investing in Enterprise produced the romantic comedy “Plotz with a View,” starring Oscar-winner Christopher Walken. The film had a budget of $8 million and brought in 111,189 euros ($131,200) from the first weekend of its 2003 release in Spain, according to the website. By contrast, Walt Disney Co.’s 2012 action-hero film “Marvel’s The Avengers” brought in a total of $55.6 million across the U.S. and Canada in the third weekend after its release in cinemas.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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