The provisions at FA02/S100 (
BIM56385) and FA05/SCH3 (
BIM56340) restrict the amount that can
be claimed as production expenditure to sums actually paid during
production of the film or, if not paid by completion, are
unconditionally payable within four months thereafter. These
changes have made it impossible to use deferments and
participations as a means of avoiding tax.
We have seen some cases where tax avoiders have attempted to
mimic the effect of deferments and participations through
reinvestments of money paid by a producer in making the film.
Typically, in a reinvestment scheme a payment is made to a person
who provides goods or services in the production of the film and
that person then ‘reinvests’ money in the film in
return for a share in profits from the film. The net effect of this
is economically the same as if the person had been paid the net
amount with the right to share in any profits from the film –
that is, just like a deferment or participation.
A reinvestment would rarely occur commercially as an
alternative to a deferment or participation because the person
receiving the payment receives taxable income greater than he would
with a deferment or participation but will not get a tax deduction
for the reinvestment in the film – and therefore ends up with
a higher tax liability on the same net income. Reinvestments
therefore tend only to be seen where the payee is not subject to
tax on his receipt (for example, because he is based in an offshore
tax haven or has losses to shelter income).
Reinvestments are highly artificial structures involving
circulation of money. Some cases have been seen where money goes
through a circle involving more than one payee/service provider.
Where identified we think we have strong grounds for challenging
these schemes. Care needs to be taken when examining accounts of
production companies in particular to identify payments which
appear unusual or particularly large, or are made offshore and
where investments are made from an associated, or the same, source.
A report should be made to Anti-Avoidance Group (see
BIM56505) in any case where sums that
are claimed to have been paid are returned, either directly or
indirectly, to the payer.
