LONDON — “Avatar” co-financier Ingenious Media has hit back at a London Times article alleging that wealthy investors have been exploiting U.K. film tax incentives for their own gain.
Thursday’s front page article alleged that HM Revenue and Customs, the U.K. equivalent to the IRS, believes that “film schemes are a £5 billion ($7.8 billion) risk for us at least.”
HMRC claims investors are ploughing money into film finance schemes to avoid tax in a win-win deal that also allows them to use losses to offset taxes on other income. After paying into a scheme tax-free, investors can take out a loan from it, also tax-free.
The paper quoted one senior HMRC official, who said, “Someone puts in money, and then the film scheme promoter says, ‘We’re going to lend you 10 times that…’ so all you do is generate tax relief and make a shed load of money.”
The article went on to allege that many schemes being investigated had been set up by Ingenious Media’s Patrick McKenna plus Tim Levy’s Future Capital Partners and Terra Nova.
U.K.-based investment and advisory group Ingenious, which last year entered a joint venture with Fox Searchlight to make British films, denies the Times’ accusation, claiming it “has never been in the business of tax avoidance” and said the statement in the Times has come from “a rogue inspector who has no authority to make such a misinformed statement”.
“All of our activities are bone fide commercial ventures, as evidenced by the film profits we have generated for investors and the tax they have paid and will pay on all film revenues arising,” Ingenious said in a statement.
“Our film production partnerships have been responsible for many well-known, profitable films, which have generated U.K. taxable receipts significantly greater than the initial tax relief given. The films we have produced are self evidently commercial e.g. ‘Avatar’ to name but one of many.
“Furthermore, we received advance tacit approval for our film production partnerships directly from the most senior officials within the Film Policy Unit of HMRC. If they didn’t like them or thought they constituted avoidance in any way why did they give us the greenlight?”
Ingenious has instructed lawyers to take action against HMRC.
Additionally, the article claimed Levy’s Terra Nova partnership, which bought rights to pics such as “1408,” offered investors the chance to transfer liabilities to a separate Luxembourg-based company.
Future Capital Partners issued a statement saying it stood behind its investments.
“Between 1997 and 2007, the governement put in place tax laws and policies that encouraged investment in film via very generous tax deferrals. FCP was one of the leaders in this sector, created and encouraged by the governement at the time. We stand absolutely behind the investments we arranged during that period. Those investments created employment, films, taxes — all the benefits that the legislation was designed to achieve.”
The Times piece comes as Blighty’s tax department has ramped up its probe into tax avoidance schemes used by wealthy individuals.
On Thursday, comedian Jimmy Carr issued a public apology on Twitter for participating in a tax avoidance scheme that caused Prime Minister David Cameron to chastise him.