On this page references to a claim under ‘Section
42’ should be read as including a claim under F2A92/S42 (
BIM56330) and a claim under that section
as amended by F2A97/S48 (
BIM56380), and to the making of a
deduction under the equivalent sections at ITTOIA/S138 to
ITTOIA/S140.
The legislation to counter film tax deferral arrangements of
more than 15 years can be found at FA05/S60 to S65 (for CT as well
as for IT before 2005/06), and at ITTOIA/S142A to S142E for IT from
2005/06 onwards.
The legislation uses the concept of a
deferred income agreement to identify tax deferral
arrangements. It applies to persons who carry on a trade or
business which consists of or includes the exploitation of the
master versions of a film and who enter into a deferred income
agreement in respect of that film on or after 2 December 2004.
An agreement is a deferred income agreement if:
An agreement which supplements or varies an earlier agreement is
treated as a new deferred income agreement (whether or not the
earlier agreement was a deferred income agreement) if it guarantees
any person an amount of income arising from the exploitation of a
film, and the last date on which any amount of the guaranteed
income will or may arise is both more than 15 years after the
operative date, and later than the last date (if any) that such
income would or might have arisen in the earlier agreement. This
provision ensures that a person amending an existing agreement on
or after 2 December 2004 cannot avoid application of the
legislation by arguing that they had entered into the agreement
before that date.
An agreement can also include a series of agreements. It is
possible that there may be more than one deferred income agreement
in respect of any film. In that case the last date guaranteed
income will or may arise is the latest date under any of those
agreements.
Note that the income under the deferred income agreement can
arise to
any person, not necessarily the person who enters
the agreement. This is to prevent schemes being devised which split
the person entering into the agreement from the person entitled to
receive income under it.
The
operative date is:
An agreement guarantees an amount of income if the agreement, or any part of it, is designed to secure the receipt of that amount (or at least that amount) of income. This definition of guarantees is similar to that used in the corporate exit charge (see BIM56665) and in the legislation preventing tax deferral schemes by partnerships exploiting films (see BIM56570). As in those sections, ‘guarantees’ does not imply certainty that an amount of income will arise, but a reasonable probability that it will do so.
The provisions to counter tax deferral beyond 15 years apply to
any person who
enters into a deferred income agreement on or
after 2 December 2004.
In most instances it will be straightforward to identify when
a person has entered into an agreement before 2 December 2004, as
the agreement will have already started with the person a party to
it. For example, where a film has already been sold and leased
back.
However, a person is not deemed to have entered into an
agreement on or after 2 December 2004 if that person entered into
the agreement in pursuance of an obligation which was unconditional
before that date. An obligation of a person is not to be regarded
as conditional before 2 December 2004 by reason only that it was
contingent on a condition, the fulfilment of which was outside the
control of that person. In other words, the obligation is
unconditional from the perspective of the person if he has no
choice but to go ahead with the agreement providing someone else
fulfils their obligations.
In practice this should mean that most or all persons that
enter into an agreement which starts on or after 2 December 2004
are subject to the new provisions. Most agreements which have yet
to commence will have conditions precedent which not only require
the person to do something (which he may choose to do or not) but
generally will have a condition that there is no obligation on the
person to enter into the agreement if there is a change in the law.
This will normally be sufficient to ensure that a person entering
into an agreement which becomes final on or after 2 December 2004
will be subject to the new provisions.
It is possible for a person to enter into a deferred income agreement either before or after a Section 42 claim is made. The provisions to counter each situation are a little different. The counter measures which apply when the deferred income agreement is entered into before the Section 42 claim is made are described at ( BIM56715), and the measures which apply when the Section 42 claim is made before the deferred income agreement is entered into are described at BIM56720.
