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HMRC claims victory in £820m Ingenious Media tax avoidance case

HMRC claims victory in £820m Ingenious Media tax avoidance case

HMRC has claimed victory in its long-running battle with Ingenious Media over the tax status of claimed film losses, despite a legal warning that the appeals process could extend far into the future.

The four-year court battle centres on Ingenious Film Partnership’s claim for tax relief on losses arising from investments in blockbusters, such as Avatar, alongside the parallel Icebreaker scheme, which is also making its way through the courts.  

‘The Icebreaker scheme is, and was known and understood by all concerned to be, a tax avoidance scheme,’ said a ruling handed down by the First Tier Tribunal.

‘The aim was to secure sideways relief for the members, and to inflate the scale of the relief by unnecessary borrowing, coupled with the illusion that the borrowed money was available for use in the exploitation of intellectual property rights by the device of the purported payment of a large production fee offset by the equally purported payment of a fee for a share of the resulting revenue.’

A spokesperson for Ingenious noted the Tribunal had also emphasised some notable differences between the two schemes, however. 

'The Tribunal has drawn a clear distinction between the Ingenious film partnerships and all other film arrangements, including Icebreaker, that have appeared before the courts in recent years by recognising that the Ingenious film partnerships were trading and that those trades were conducted with a view to profit,' they noted

'This is in stark contrast to Icebreaker and other tax avoidance schemes... which were found to not be trading and as a result, set up for the sole purpose of avoiding tax.'

The decision will have repercussions on cases currently being investigated, worth a total £820 million in tax and interest, said the HMRC, and followed an initial ruling against Ingenious Media in 2014.   

‘These were some of the biggest films of all time, and the schemes involved people claiming far more in tax than they invested in the first place,’ said Jennie Grainger, head of enforcement and compliance at the agency.

‘We always say that if something is too good to be true then it probably is. And in this case the long legal battle will mean that investors face even bigger bills for interest and legal costs.’

However, BDO tax dispute resolution partner Dawn Register cautioned that the ruling was not a full victory for either party and a final resolution to the case may still be some years away.

‘This decision could prove to be the basis of a settlement, although as a First Tier decision it does not create a legally binding precedent for other cases,’ she said.

‘Participants in what HMRC deem to be avoidance schemes need to be mindful of the timing of new legislation in April 2017, which may label them “serial avoiders” and bring with it nasty new penalties and restrictions.’    


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