Are high-net-worth individuals involved in British film finance schemes secretly stashing money offshore? Revenue & Customs, the UK equivalent of the IRS, believes that “billions of pounds in tax revenue have been lost” as tax breaks are sold to wealthy investors enabling them to avoid or defer tax, according to an article in today’s Times Of London. Revenue and Customs told The Times that 600 film schemes are under inquiry with one official saying that overall they are “a £5B risk for us at least… Someone puts in money, and then the film scheme promoter says, ‘We’re going to lend you ten times that’… so all you do is generate tax relief and make a shedload of money for nothing.” The report has stirred the ire of one company mentioned, Ingenious Media, which surmises the anonymous Revenue source is “a rogue inspector who has no authority to make such a misinformed statement.” Ingenious says it has instructed its lawyers “to take appropriate action.”

The report says 75 members of investment partnership Terra Nova are set to avoid £18M in taxes by moving their liabilities to Luxembourg. The Times says it has seen confidential documents that show Terra Nova, set up by Future Capital Partners founder Tim Levy, “gave investors the chance to avoid deferred tax by transferring liabilities offshore.” A spokesperson for Future Capital Partners provided Deadline with a statement that reads in part: “We maintain that, in all circumstances the investments that have been facilitated by FCP are commercially driven, where there is considerable risk to capital, but significant benefit if the project is successful.”

Ingenious Media also said it had been given “advance tacit approval for its film partnerships directly from the most senior officials within the Film Policy Unit” of Revenue and Customs and positing: “If they didn’t like them or thought they constituted avoidance in any way why did they give us the green light?”

“Ingenious has never been in the business of tax avoidance. All of our activities are bone fide commercial ventures, as evidenced by the film profits we have generated for investors and the tax they have paid and will pay on all film revenues arising,” Ingenious added.

The Times report comes amid a tax avoidance brouhaha in Britain that had front-page status this week when local comedian Jimmy Carr was quoted as saying, “I pay what I have to and not a penny more.” Carr was an investor in a scheme based on the island of Jersey and is under investigation by the Treasury. Yesterday, Prime Minister David Cameron came out swinging, saying, “All those people who work hard and pay their tax, and out of that save up to go and see Jimmy Carr, he’s taking that money and stuffing it somewhere where he doesn’t pay tax.” A contrite Carr then announced he had abandoned the scheme.

Full statements from Ingenious Media and Future Capital Partners follow:

Ingenious Media:

Our film production partnerships have been responsible for many well known and profitable films which have generated UK taxable receipts significantly greater than the initial tax relief given. The films we have produced are self evidently commercial films eg Avatar to name but one of many.

Furthermore, we received advance tacit approval for our film production partnerships directly from the most senior officials within the Film Policy Unit of HMRC. If they didn’t like them or thought they constituted avoidance in any way why did they give us the green light?

To clarify, our investors pay UK tax on their share of the worldwide income from the films, a fair number of which are already profitable. Even those films that don’t fully recoup their costs give rise to a tax charge on the income they generate.

In short, Ingenious film partnerships cannot be compared to or described in the manner in which they have been as similar to those operated by other firms and which are designed to avoid tax.

Furthermore, our film sale and leaseback partnerships were set up in accordance with specific legislation introduced by the Government in 1997 to encourage investment in British films and fully accord with HMRC’s guidelines, as acknowledged by them.

Our dealings with HMRC have been in the ordinary course of business and fully transparent. We have received various assurances from HMRC over a long period of time that our film partnerships have complied with proper accounting and trading rules, which is why we were surprised not to have received their full agreement and why we have now asked for the matter to be brought to a conclusion by an independent tribunal.

We believe that any view expressed by an individual within HMRC about a taxpayer’s affairs, if such a statement was actually said given the breach of their own rules that it represents, is a very serious breach of confidentiality and we have therefore instructed our lawyers to take appropriate action. We will also be taking this matter up directly with the most senior officials within HMRC as a matter of urgency. It has to be questioned, therefore, as to how bona fide such a comment really is. We believe it has come from a rogue Inspector who has no authority to make such a misinformed statement.

Our day to day dealings with HMRC continue as before and we work towards what we believe more than ever will be a successful outcome at the Tribunal.

In summary, we cannot be involved in tax avoidance at the same time as we are engaged in profit making activities which generate more tax payable than relief given.

Sale and leaseback is an official government inspired deferral of tax (not avoidance) and our production partnerships have generated profit making films on which full UK tax has been paid. We have attempted to work with HMRC for 7 years to resolve any concerns they may have and as they have been unable to articulate what their concerns are we have asked for the matter to be resolved by an independent tribunal. Our film investments are fundamentally different to those “schemes” and “arrangements” whose primary aim is to avoid tax.

 

Future Film Partners:

Between 1997 and 2007 the Government put in place tax laws and policies that encouraged investment in film via very generous tax deferrals. FCP was one of the leaders in this sector, created and encouraged by the Government at the time. We stand absolutely behind the investments we arranged during that period. Those investments created employment, films, taxes – all the benefits that the legislation was designed to achieve. We now have a situation where because of the current economic environment HMRC and latterly the Government are challenging what are both legally structured and commercial investments.

Recent coverage have been very clear about the differentiation between ‘synthetic investments’ and those with proper asset backed potential returns. We maintain that, in all circumstances the investments that have been facilitated by FCP are commercially driven, where there is considerable risk to capital, but significant benefit if the project is successful.

Since 2007 many things have happened and legislation has restricted the ability for individuals to invest in film partnerships.

It is well known that we have diversified our offerings and we continue to offer asset backed investments with potential for profit and risk in diverse industries. As an example, we are now in the process of raising over £200 million to create over 1000 temporary construction jobs and 150 permanent jobs in Grimsby. On completion, the project is forecast to generate over £1 billion of revenue for this country and the associated taxes that go with this.