According to the Financial Times, members of limited liability partnership Eclipse 35 claimed tax relief on interest on loans they took out to buy the distribution rights to two Disney films: Enchanted and Underdog.
The partnership, which boasted Sir Alex Ferguson and former England manager Sven-Goran Eriksson among its investors, then leased the rights back to Disney for a payment spread over a 20-year period.
Investors borrowed significant sums of money, at interest, to invest in Eclipse. As the capital was supposed to be used by the partnership for trade, the individuals could make interest relief claims against their other income.
However, HMRC has argued that Eclipse failed to actually conduct any trades, which is a prerequisite to qualifying for any tax relief.
They have accused the partnership of simply organising “a sophisticated financial model involving licensing and distribution rights”.
Supreme Court
The Court of Appeal, in February 2015, upheld earlier decisions by the First Tier Tax Tribunal and Upper Tax Tribunal that the Eclipse scheme was not eligible for tax relief.
However, Eclipse has opted to again challenge the decision and take their case to the Supreme Court, which is scheduled to take place on Wednesday.
Should Eclipse fail in its challenge, investors could face charges in the form of fines and fees, in addition to a collective tax bill that could exceed £600m.
According to the case summary: “The appellant (Eclipse) paid £503m to acquire from Walt Disney Pictures specified rights to distribute and/or exploit two films produced by Disney.
“Under the same transaction the appellant immediately disposed of the rights (by way of sub-licence) to another member of the Disney group for consideration comprising the guaranteed right to payments over 20 years totalling £1,022m and the possibility of further payments dependent on the success of the two films.
“The Court of Appeal dismissed the appellant’s appeal that the transaction was an adventure in the nature of trade, holding that it had instead made an investment.”
