Wealthy celebrities and sports stars have lost another appeal against a ruling that failed film partnerships were above board business investments.
The Court of Appeal agreed with two rulings by lower courts that the Samarkand and Proteus film partnerships could not claim tax relief against the financing of failed films.
The argument was about if the partnerships were carrying on a trade when they made significant losses to offset against other income.
Tax rules allow partnerships to balance losses against other taxable income earned by the partners.
Partnerships were not trading
The judges referred to another recent film partnership case, Eclipse, and agreed that the decision should be applied to Samarkand and Proteus. In Eclipse, the court found that taxpayers had to consider the trading test as a whole and could not select some rules that a partnership was trading and ignore others that pointed to an opposite conclusion.
The court decided the question was not if the partnerships genuinely acquired and leased the films, but if those activities, viewed in the context of each partnership’s entire business, were a trade.
In an important ruling for other taxpayers, the court also dismissed a claim that HM Revenue and Customs Business Income Manual offered firm guidance.
The judges explained that the manual carried a ‘wealth warning’ pointing out the guidance was not reliable in a case of suspected tax avoidance.
Claims that the partnerships were treated unfairly and against settled practice were also thrown out.
Investors must repay £26m
The partnerships bought the rights to three feature films – Oliver Twist, The Queen and Irina Palm.
Effectively, three courts have now ruled the partnerships’ activities were not a business, so tax reliefs that allowed partners to offset their losses could not apply.
The partners asked for £26 million tax to be repaid under the arrangement.
Other film partnership cases involving £286 million are also under investigation by HMRC.
HMRC Director General, Customer Compliance, Jennie Granger has said: “This scheme deliberately sought to exploit the tax reliefs put in place to help boost the British film industry, but it didn’t pay off. We’re delighted with the win which means we’ve protected £26 million of taxpayers’ money.”