Brits nix nascent P&A funds in latest tax turn
LONDON — The U.K. has outlawed P&A funds that were in the midst of raising $700 million to bankroll the distribution of movies from Universal, Disney and MGM.
Inland Revenue announced this latest clampdown on tax avoidance schemes announced Friday .
Under the new rules, the Hollywood studios will no longer be able to exploit the British tax system to underwrite their release costs in the U.K. and North America.
The studios only started to explore such schemes in the past 12 months, but the British government has proved quick to close them down.
The funds immediately affected include Scion’s Globe scheme, which was raising $200 million for Universal; Future Film’s Timeless Releasing, raising $450 million for Disney and Miramax; and Ingenious Media’s $54 million fund for MGM.
Scion confirmed that it had cancelled its entire Globe fund with immediate effect. The status of two other deals remains unclear, depending on how far they had progressed with their fund-raising when the ax fell.
A source suggested that Timeless already had $230 million in place by Friday and that its Disney fund could therefore go ahead at this level.
The P&A funds are structured as sale-and-leaseback deals, with British investors acquiring the marketing rights to a slate of studio pics in certain territories, typically Britain and North America. Using generally accepted accounting principles (GAAP), they write off the cost as an upfront tax loss and lease them back to the studio for regular payments over a period of 15 or 20 years.
Scoots Atlantic launched the first P&A fund for Warner last year, followed by Invicta for Sony. Both of those deals allowed the studios to buy out the investors after just three years.
That “exit option” was outlawed last month as part of the U.K. government’s first attempt to block schemes operating outside the Section 42 and Section 48 film tax break.
But the second generation of P&A schemes — Globe, Timeless and the Ingenious fund — slipped through the net because they had no exit option. Many observers, however, predicted that the government would not allow them to stand for long.
“The chancellor sent a strong signal in his budget speech that the government is determined to tackle tax avoidance,” said Paymaster General Dawn Primarolo. “The action announced today protects the Exchequer against a large tax loss.”