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HMRC Wins Tax Avoidance Scheme Appeal

by Robert Lee,, London

27 December 2013

A UK tribunal has ruled that a scheme marketed as a tax-efficient way to invest in the film industry does not deliver the tax relief it claimed.

The firm in question, Eclipse 35, was a limited liability partnership that attempted to use a complex series of financial transactions to enable its 287 partners to obtain tax relief on their general income.

The scheme was promoted by Future Capital Partners and first employed in the 2006-07 tax year. Under it, circular flows of funds were used to create an upfront interest payment on which investors could claim tax relief.

HM Revenue and Customs (HMRC) challenged the scheme in 2011, when a First Tier Tribunal ruled that the claims for relief were not allowed, and that the profits generated by the process were still taxable. An Upper Tribunal has now confirmed this decision.

HMRC says that the firm is one of 31 related avoidance partnerships in existence, which together put over GBP600m (USD979.5m) in tax at risk.

Exchequer Secretary David Gauke welcomed the judgment: "The Government wants to support and encourage genuine business investment through the tax system, which is why we have tax reliefs. However, we will not stand for abuse of those reliefs and HMRC will come down hard on anyone who tries. In this case, anyone who used the scheme to try to avoid tax will have to pay tax on the income from the scheme, meaning they are worse off than if they never used it.

"The message is clear – if it looks too good to be true, it probably is."

TAGS: court | compliance | tax | investment | business | tax compliance | tax avoidance | tax incentives | revenue guidance | law | United Kingdom | enforcement | tax authority | legislation | HM Revenue and Customs (HMRC) | tax breaks | revenue statistics | standards | penalties | HM Revenue and Customs (HMRC)

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