A film partnership accused by HM Revenue & Customs of using industry exemptions to help its members avoid paying their fair share of tax was refused permission to appeal to the supreme court on Wednesday.
The Eclipse Film Partners 35 scheme, whose 289 members included Sir Alex Ferguson and Sven Goran Eriksson, denies using distribution rights to Disney films Enchanted and Underdog to generate tax relief. The supreme court rejected its application for permission to challenge HMRC’s 2012 ruling at a tax tribunal that it constituted an aggressive avoidance scheme.
Film partnerships became popular as a means of avoiding tax after Gordon Brown set up tax breaks for the industry in 2005. In 2012 officials launched a push to close such schemes in the belief that some had stepped over the line into aggressive tax avoidance. Investors in Eclipse Film Partners 35 were told that same year that they were not entitled to £117m in tax relief that the scheme had been intended to provide.
The Telegraph reports that investors in Eclipse 35 put in $50m towards buying distribution rights to Enchanted and Underdog in 2007. The purchase fund was then topped up by a Barclays loan facility that contributed another £790m. On the same day, the partnership sub-leased the rights on to another arm of Disney, thereby generating tax relief.
Eclipse 35 had already lost its case at the court of appeal, which ruled in February last year that the scheme amounted to tax avoidance on the grounds that there was no trade being carried out. The supreme court’s refusal of a final appeal could have huge ramifications for similar schemes. The Financial Times reported last year that the scheme was one of over 30 film financing partnerships promoted by the Future Capital Partners firm in the mid-2000s.
• This article was amended on 14 April 2016. An earlier version said that Eclipse Film Partners 35 was due to take its case to the supreme court. The supreme court refused permission to appeal some hours before the article was published.
