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Investors Sue Film Investment Firm Amid Avoidance Claims - Report

Robbie Lawther, Reporter, 15 August 2018

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Reports claim that investors, bankers and celebs are suing a film investment firm over schemes that were branded as tax avoidance.

Bankers, athletes and celebrities are suing investment firm Ingenious Media, saying that they were misled about investments in the film industry that were later branded as tax avoidance schemes by the UK government, according to media reports.

Dozens of traders and managers from Goldman Sachs, Lloyds Banking Group, HSBC, Credit Suisse and other banks are among approximately 500 investors taking part in the London lawsuit, according to court documents released earlier this month. Celebrities, including British composer Andrew Lloyd-Webber, musician Robbie Williams, former football stars David Beckham and Gary Lineker, are also among the claimants. (Sources: Bloomberg, Financial Times.)

The UK government has cracked down on the misuse of movie tax breaks in recent years. The Treasury expanded tax relief for films in 1997 to boost the British film industry, but loopholes in the system were widely abused.

Ingenious Media, whose movies include the Life of Pi and Avatar, ran investment plans focused on films that were designed to be tax efficient, according to court documents. Investors say, however, that Ingenious Media “made representations of fact which were false and which they had no reasonable grounds for believing were true” while promoting the plans. This induced the claimants into joining the plans and losing money, they said.

Ingenious denies that the plans were set up as a tax dodge and is in its own legal battle with the UK tax authorities over the issue. A specialist tax court ruled in August 2016 that some parts of the investments were eligible for tax relief and others were not, with both sides claiming victory. A spokesperson for Ingenious said that they were confident of validating the rest of the investment vehicles at a hearing next March.

Patrick McKenna, the Ingenious chairman, who is also a defendant in the lawsuit, said through his spokesperson that the claims are “entirely without merit and will be vigorously defended.”

HMRC, the UK tax office, has said that one of the Ingenious plans tried to use artificial losses arising from investments in a range of movies, and that in some variations users claimed more in tax relief than they had invested.

"Caveat emptor – a fool and their money. The most common reason for “investment” schemes failing foul of the tax courts is that the investment element is secondary and the tax benefits primary,” said Miles Dean, partner of Milestone International Tax.

"The scheme providers 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; neither the agent, the IFA, nor the celebrities would fully understand the scheme they were participating in, other than believing it would reduce their tax bill. Until 2013, the tax avoidance industry was rampant in this practice and Ingenious, together with their appointed QCs, were at the top of the food chain.The problem is that footballers and pop stars tend to have very limited knowledge of tax law, not least very complex tax driven schemes, and their agents are no better. It is likely that many of the IFAs selling the schemes wouldn’t fully understand the complexities of the arrangements at hand," Dean added.

This publication has frequently reported on the tax affairs of sports stars and celebrities, and collated the best stories about the area in football. This publication has also reported on the affairs of the UK investment firm Ingenious Media over the last year, in February 2018 and January 2018.

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