For a company to be a film rights company (
BIM56660), and therefore potentially
subject to the legislation which counters exits by companies
benefited by film relief, it must be party to an agreement that
guarantees it an amount of income from the
exploitation of a film. Tax deferral arrangements such as sale and
leaseback schemes generally have clearly specified minimum amounts
of income which will arise under the arrangements. For example, in
a sale and (finance) leaseback scheme these would be the lease
rental payments under a finance lease. In many cases these amounts
will be secured by some form of collateral security, letter of
credit or other arrangements (see
BIM56400 onwards).
The legislation to prevent corporate exit schemes targets tax
deferral arrangements by requiring that there must be an agreement
(or agreements, including a chain of agreements) that guarantees
the film rights company some amounts of income. If the definition
of ‘guarantees’ in the legislation implied certainty,
then the exit charge might be too easy to avoid by introducing an
element of (apparent) uncertainty.
An agreement that guarantees an amount of income is therefore
defined to include any agreement, or any part of an agreement which
is
designed to secure the receipt of that amount (or
at least that amount) of income. This does not imply certainty, but
rather that the receipt is reasonably likely. A good test of
whether an agreement is designed to secure an amount of income is
whether it is possible to calculate the minimum amount of income
that may be received with a reasonable degree of accuracy. Indeed,
such a calculation is needed to calculate the amount of the
corporate exit charge under this legislation.
It does not matter when that income would be received under
the agreement: the income may arise (as it does in tax deferral
schemes) many years after the agreement is entered into.
Guaranteed income under the agreement is any guaranteed
income from the
exploitation of a film, which, if it were received
by the film rights company when that company is carrying on the
trade, would be income from the trade. For example, in a sale and
leaseback arrangement the leasing income received by a company that
has acquired and leased back a film is the income it receives from
its exploitation of the film, because it is exploiting the film by
leasing it out.
The legislation applies equally if the film rights company
has succeeded to rights to receive income under an agreement as it
does to a film rights company that was the original person entitled
to receive income under the agreement. So the film rights company
does not need to be the company that originally acquired (and
leased back) the film, nor the company that has claimed a deduction
for expenditure on the production or acquisition of the film.
Neither does it need to own or have ever owned, the film.
