The investors allege that Barclays, Bank of Ireland, HSBC and Disney misrepresented the chances of the Eclipse film investment scheme delivering tax breaks, with the result that many now face huge tax bills and possible bankruptcy.
Investors are reported to include Sven-Goran Eriksson and Sir Alex Ferguson but it is not known if they are part of the claimant group represented by lawyers at Edwin Coe and advised by Newport Tax Advisers.
The redress action focuses on the trading status of the various Eclipse partnerships, their construction, marketing and execution.
Edwin Coe’s case is that, had the true nature been known, the schemes would not have proceeded at all and no individual would now be left with the tax and other losses flowing from the schemes.
Lawyers will argue that investors were promised significant tax relief, on the basis the scheme made bonafide investments in the film industry, and that the scheme structure and its component parts had been subject to due diligence.
High burden of proof
Miles Dean a founding partner of Milestone International Tax, said: “Film schemes are inherently complex tax arrangements and it is very likely that many of those investing were completely unaware of the associated tax risks.
“However, it is highly likely that all the investors will have signed waivers so the burden of proof will be very high, limiting their chance of success in court.
“The defendants will argue differently, but the ‘investments’ were not really investments. They were designed to create losses (an investment usually produces a return) against which income could be offset.
“Of course, hindsight is a wonderful thing and one would need to scrutinise the marketing material and associated tax opinions to determine whether the investors were sold a pup.”
The scheme’s unravelling
The Eclipse Film Partnerships were a series of film financing schemes conceived by HSBC and promoted by Future Capital Partners (formally known as Future Films Ltd) between 2003 and 2007. They were marketed as a tax efficient vehicle for investment in future returns on film rights on studio made films, creating a tax deferral benefit.
Investors paid significant sums into the schemes, and entered into loan agreements with the lending banks, Barclays and Bank of Ireland, to buy the film distribution rights to Disney films.
HM Revenue & Customs investigated the partnerships, primarily on the basis they were not and had never been trading with the ‘intention of making a profit’.
When the courts agreed with HMRC it wiped out relief on loan interest payments, in cases potentially multiplying tax exposure ten times the original stake.
While HMRC has made it clear that it intends to pursue members for payment of tax, penalties and dry tax and interest. The redress action seeks to recover all losses currently known and any prospective losses from the makers and distributors of the scheme.
