HM Revenue & Customs (HMRC) has won an upper tax tribunal case against a film financing company over a tax avoidance scheme.
Ingenious Media was accused of persuading sportspeople, television presenters, actors and business leaders to invest in a scheme that generated artificial losses to gain tax relief.
An investigation by newspaper The Times found that David Beckham, Guy Ritchie and Sacha Baron Cohen are among the celebrities involved.
Such was the widespread nature of the scheme that even the current chair of the Financial Conduct Authority, Charles Randell, was recommended Ingenious’ investment offering by a financial adviser.
HMRC had already won a first-tier tax tribunal decision in 2016, where the ruling deemed Ingenious’ scheme to be for the purpose of tax avoidance.
But the firm maintained that it was offering legitimate investments in the entertainment industry and appealed the ruling in March 2019, which was dismissed by the upper tribunal on 26 July 2019.
Now, HMRC said that the final verdict means £451m ($555.4m, €500m) must be repaid.
A spokesperson for the taxman told International Adviser: “We are pleased with the very positive outcome in HMRC’s favour in this case. This win defeats eight avoidance schemes which used film or games investments to create losses.
“Users of the scheme were given the opportunity to settle their tax affairs a number of years ago and many did. Those who chose to take the case to court are now worse off than those who settled with us.
“HMRC has won around 90% of tax avoidance cases taken to litigation in the past three years, with many more settling before it reaches that stage.”
Matter of compliance
Many of the celebrities involved have already paid back the tax due after being issued an accelerated payment notice.
Others, however, have not received such notices yet.
Additionally, around 500 investors, including Andrew Lloyd-Webber, sued the firm in 2018 for operating a tax avoidance scheme.
A spokesperson for Ingenious Media said: “We are disappointed by this decision. We believe it fails to reflect the facts presented to the court, misunderstands how the film industry operates, and fails to correct the flawed interpretation of commercial film contracts delivered by the lower court. We anticipate that the partnerships will seek permission to appeal.
“The break-even threshold for the films in question in this litigation demonstrably conforms to the industry average. Each film was capable of delivering substantial profits, based on a reasonable expectation of box office performance.
“We also believe that the decision fails properly to address the expert evidence provided to the first-tier tribunal (FTT) which supported the intention of the partnerships to maximise film revenues and generate profits.
“The decision also misunderstands what the profitability threshold actually was for each of the films in question and the threshold for what constitutes trading with a view to profit for tax purposes.
“Notwithstanding the decision’s failure to correct the contractual and commercial errors made by the FTT, we are confident they will be properly addressed by a higher court.”