Tax
Investors Reportedly Sue HSBC Over Film Scheme

The UK tax authorities have cracked down on a number of film investment funds in recent years because they allegedly offered large tax loss offsets without actual works being produced. HSBC declined to comment.
HSBC faces a £1.3 billion
($1.63 billion) lawsuit brought by 371 investors relating to a
Disney film financing scheme branded as a tax avoidance vehicle
by the UK tax authority, according to the Financial
Times (22 June).
The investors have filed a claim at London’s High Court against
HSBC UK for alleged losses caused by the role of its private bank
in the development and marketing of a series of film financing
schemes known as the Eclipse Partnerships, the report
said.
HSBC told WealthBriefing yesterday that it does
not comment on ongoing legal cases.
The claimants, represented by law firm Edwin Coe, allege they
were told that Eclipse would trade the rights to blockbuster
Disney films including Enchanted. However, they claim that none
of the rights to any of these films were ever actively traded and
say that instead of investment returns they have ended up with
losses and potential tax liabilities for investing in the
partnerships.
Tax deferral structures in film investment were first introduced
by the Labour government in 1997 to help independent producers
and encourage investment in the UK film industry. Investors in
authorised film finance schemes could offset the investment
against their taxable income.
The case raises questions about what counts as legitimate or
off-limits forms of tax avoidance. In the latter case, they can
be defined as where there’s no underlying actual business or
economic activity being encouraged by the tax break, but just a
ploy to reduce tax. Cases in the past have included attempts to
harvest tax losses linked to investments in films and video
games, resulting in crackdowns from HM Revenue & Customs.
The FT report said that Eclipse was open to investors
between 2006 and 2008 and was marketed as a legitimate tax
efficient investment. The report said that 750 people ranging
from footballers to accountants invested around £2.3 billion of
capital in Eclipse and obtained loans to supplement their
investment. The interest on the loans was meant to have been
covered by their eventual return on their film exploitation
rights investment. HSBC’s private banking arm helped to promote
the scheme and is estimated to have made £25 million in fees for
its role in Eclipse, the report said.
In 2015 the Court of Appeal ruled in favour of HMRC on Eclipse
Film Partners and backed HMRC’s view that the arrangement
amounted to tax avoidance on the grounds that there was no trade
being carried out - a pre-requisite for investors to
qualify for tax reliefs.