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  3. HMRC Hails 'Billion Pound' Ruling Against Film Tax Scheme

HMRC Hails 'Billion Pound' Ruling Against Film Tax Scheme

by Jason Gorringe,, London

16 November 2017

HM Revenue and Customs (HMRC) has said a ruling from the UK's Supreme Court on November 15, 2017, against users of a failed tax avoidance film partnership scheme will save taxpayers over a billion pounds.

HMRC said the scheme sought to use legitimate investment in the film industry as a hook for tax avoidance.

HMRC defeated the avoidance scheme in court, in HMRC v. De Silva and another ([2016] EWCA Civ 40). The appelants sought to argue on a technicality that HMRC could not overturn their loss relief claims. However, the Supreme Court disagreed, ruling in favor of HMRC, in a judgment delivered on November 15 in De Silva and another v. HMRC ([2017] UKSC 74).

Summarizing the ruling, the Supreme Court said the appellants had invested in and became limited partners of various partnerships in implementing marketed tax avoidance schemes. The schemes were aimed at accruing substantial trading losses through investment in films. The partnerships claimed that they had suffered such losses in several tax years and claimed relief for film expenditure by taking advantage of tax incentives under Section 42 of the Finance (No 2) Act 1992. In the early years of trading, a limited partner could use the provisions of sections 380 and 381 of the Income and Corporation Taxes Act 1998 (ICTA) to set off his allocated share of trading losses of a partnership against his general income for that year, or any of the previous three years of assessment.

HMRC did not accept the partnerships claims for relief and initiated inquiries into their tax returns under Section 12AC(1) of the Taxes Management Act 1970 (TMA). HMRC disallowed the partnerships' claims for expenditure funded by non-recourse or limited recourse loans to individual partners and also expenditure paid as fees to the promoters of the schemes. The partnerships appealed. Thereafter, on August 22, 2011, the partnership losses were stated at much reduced levels in a partnership settlement agreement. Between September and November 2011, HMRC wrote to the appellants to intimate that their carry-back claims in their personal tax returns would be amended in line with the lower figures for the partnership losses stated in the partnership settlement agreement.

The appellants raised judicial review proceedings against HMRC's decisions. They asserted that HMRC was entitled to inquire into their claims only under Schedule 1A to the TMA and that, because the statutory time limit for such an enquiry had expired, the appellants' claims to carry back the partnership losses in full had become unchallengeable. The Upper Tribunal rejected the appellants' claim, and the Court of Appeal dismissed their appeal. The appellants then appealed to the Supreme Court, which has unanimously dismissed the appeal.

HMRC Director General for Customer Strategy and Tax Design Jim Harra said: "This is another great success in HMRC's drive against tax avoidance. HMRC defeated De Silva and Dokelman's tax avoidance scheme but they still argued on a technicality that the department could not collect the tax. The Supreme Court's decision in favor of HMRC on this point will ensure that these taxpayers and others waiting behind their case will have to pay what they owe."

TAGS: court | Finance | tax | investment | tax avoidance | tax incentives | United Kingdom | fees | Tax

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