BIM56435 - Film and audio products: tax deferral schemes for qualifying films: sale price

Commercially a sale and finance leaseback transaction is equivalent to a secured loan on an asset (see BIM56410), with beneficial loan repayment terms arising from the tax benefit which is obtained by the acquirer/lessor. Where the asset has a clear market value, the asset itself may be sufficient to secure the loan, but, for most films it is extremely difficult to put a value on the master version of a film before it has been released for showing to the general public as there is no way of knowing how successful or otherwise a film will prove to be. Therefore, the lessors normally require some other form of security – usually a deposit of money to guarantee the future lease rentals (see BIM56425). Unfortunately, this can lead to tax avoidance by inflating the sale price (see BIM56335).

Because of the practical difficulty in ascertaining this value ( BIM56450), and in order to allow film producers to access relief as a proportion of their actual costs, you can accept that a film may be sold prior to general public release for a sum equal to actual production expenditure plus (before 2 December 2004 – see BIM56340) other (relatively minor) incidental expenditure incurred on completing the film (BIM56335). The other expenditure may include things that do not qualify as production expenditure, such as interest, insurance premiums, the completion bond, and so on. Providing these costs are not exceeded, a challenge should not be made on the grounds that a proper appreciation of the film’s prospects would have led to a lower figure. After 2 December 2004, except for films within the transitional exemptions, relief under F2A92/S42 is restricted to the amount of production costs only.

This treatment should also be applied where there is a pre-release agreement to purchase for such a sum and the sale takes place within three months of release.

Release of the film at a film festival should not be regarded as general public release, whether or not the public can pay to see the film at such a festival.