Hundreds of investors in Britain involved in tax avoidance schemes face paying huge sums

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The aggressive tax avoidance scheme the supreme court is refusing a final appeal was based on Disney film rights. 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.

Eclipse Film Partners 35 is one of the film partnerships accused by HM Revenue & Customs of using industry exemptions to help its members avoid paying their fair share of tax. Sir Alex Ferguson, the former Manchester United manager, and Sven-Göran Eriksson, the former England manager, were among a host of City figures and celebrities in Eclipse 35, a £1 billion film investment scheme with Disney that created tax relief worth £117 million.

The Eclipse 35 scheme, who has another 289 members besides Sir Alex Ferguson and Sven Goran Eriksson, denies using distribution rights to Disney films Enchanted and Underdog to generate tax relief. However, The Telegraph reports otherwise. According to this source, 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.

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.

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 last month 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. Hundreds of wealthy investors are now facing having to pay out huge sums after the Supreme Court finally closed the door on a seven-year battle with Revenue & Customs.

León Fernando del Canto
Managing Partner at Del Canto Chambers
Lawyer & Abogado

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