BIM56660 - Film and audio products: avoidance: corporate exit schemes: companies affected

The legislation to counter film corporate exit schemes can be found at FA05/S66 to S71. It only applies to companies which are part of a group of companies. There is separate legislation to counter exits by individuals benefited by film relief (see BIM56600).

The corporate exit charge applies to a company which is a film rights company to whom an exit event (see BIM56670) occurs.

A film rights company is a company that, immediately before an exit event occurs,

• is a 75% subsidiary of the principal company of a group of companies (‘the principal company’), and
• carries on a trade or business which consists of or includes the exploitation of films or the receipt of income derived from films, and
• is party to an agreement which guarantees it an amount of income (see BIM56665) arising from the exploitation of a film.

Note that whilst the film rights company has to be party to such an agreement, and therefore has rights arising from the exploitation of a film (see BIM56665), it does not need to be, or to have ever been, the owner of the master version of the film.

The legislation works by looking at disposals outside of a group of companies, and therefore definitions of what is meant by a group are required. The legislation does this by linking into the rules for group relief at ICTA88/S402 (see CTM80100 onwards). In doing so, the exit charge legislation is able to link into the extensive anti-avoidance provisions related to group relief, and in particular to what is and is not a group company.

Two companies are deemed to be members of a group of companies if one is the 75% subsidiary of the other, or both are 75% subsidiaries of a third company.

The principal company of a group of companies, of which the film rights company is part, means a company:

• which could claim group relief for any trading losses surrendered by the film rights company, and
• which is not itself the 75% subsidiary of any other company which could claim group relief for any trading losses surrendered by the film rights company.

A company is a 75% subsidiary of another company if it would be considered to be so for the purposes of group relief under ICTA88/S402.