BIM56440 - Film and audio products: tax deferral schemes for qualifying films: pre-sales agreements

Film producers normally obtain funds to make a film from a variety of different sources. It is often practice in the film industry for a producer to fund part of the costs of making a film by pre-selling some of the rights to exploit a film to a film distributor (for example, by granting a licence to distribute the film in a particular territory for a certain period of time). Clearly, the value of the master version of a film will be reduced if some or all of the rights to exploit and profit from the film are removed.

The existence of pre-sales agreements should not be used to challenge the amount of the lessor’s claim to relief on acquisition of the master negative provided that:

• the pre-sales do not amount to an outright in perpetuity disposition of the rights in the film; and
• the benefits under the pre-sales agreement are acquired by the lessor on the sale of the master version by the producer.