It is alleged the scheme, which took advantage of the tax relief the UK Government offers the film industry, created the appearance of huge “paper losses”, The Times reported on Tuesday.
Investors in the scheme were predominantly high-net-worth individuals, and included pop stars, politicians and aristocrats.
Financial adviser Norman Leighton allegedly used his Monaco-based company to give the appearance that up to £262m ($401m, €357m) was being invested in the scheme, Birmingham Crown Court heard on Monday. He was paid £300,000 for his part in the scheme.
Cynical attempt
Patrick Harrington, QC, for the prosecution said investments in the scheme were transferred from the UK to an account in Monaco, the British Virgin Islands, Guernsey and then back to the British Virgin Islands, before returning to the UK.
“Tax avoidance, although morally repugnant in the minds of many, is not against the law. Evasion is."
He said the transfers were a “deliberate and cynical attempt to disguise what was going on”, with the potential loss to HM Revenue & Customs amounting to £100m.
Morally repugnant
“Tax avoidance, although morally repugnant in the minds of many, is not against the law. Evasion is. This is evasion,” Harrington said during the hearing.
Chartered accountant and film producer 65-year-old Keith Hayley was described as the “principal architect of the scheme” and allegedly made £8m. Charles Savill, 52, was accused of recruiting the investors and allegedly made £13m.
Another producer Robert Bevan, 52, allegedy made £5m from the scheme, and 40-year-old media consultant Cyril Megret is accused of making £800,000.
Little Wing Films
The group allegedy used a London-based company, Little Wing Films, to operate the scam. They are also accused of secretly controlling a number of offshore companies, including a Guernsey-based firm called Fat Cat Films.
The film partnerships agreed to invest £40,000 in pre-production funding for 302 films, 35 of which were eventually made, Harrington said.
All five men pleaded not guilty to conspiring to cheat the taxman and conspiring to commit false accountancy for the purposes of a tax avoidance scheme between 2002 and 2009.
The trial is expected to last six months.
Recycled
Court documents from earlier this year reveal that the film producers promoted the scheme to financial advisers who then in turn marketed it to their clients.
Rather than investing in films, most of the money was recycled through a network of offshore companies owned by Hayley, Bevan and Savill and was used to finance the limited recourse loans made to investors, which made the scheme effective as a tax mitigation scheme.
Documents also reveal the scheme produced little or no legitimate commercial activity.
Avoidance vs. evasion
Andrew Watters, director of UK law firm Thomas Eggar, said this case is interesting because it highlights the difference between avoidance and evasion.
