Supreme Court to Settle the Eclipse 35 Dispute

Supreme Court to Settle the Eclipse 35 Dispute

Wed 13 Apr 2016

Following a Court of Appeal ruling in February 2015 which found in favour of HMRC that Eclipse Film Partners No 35 LLP (“Eclipse 35”) did not carry on a trade, the Supreme Court will this week hear the appeal by Eclipse 35 against the Court of Appeal’s decision. This is the latest and, very probably, the last stage in a very long-running dispute.

The background to the scheme is Eclipse 35, structured by Future Capital Partners, acquired rights from Disney to two films, Enchanted and Underdog. They then leased the film rights back immediately to another Disney company. The scheme was structured in a way to enable investors to claim tax relief for the significant amount of interest paid on loans that had been taken out as part of the scheme.

The Court of Appeal determined, as did the previous tax tribunals, that the scheme did not qualify for tax relief purposes as no trade was being carried out, but instead it had carried on a non trading activity of film exploitation.  

The Supreme Court comprising of five judges has been asked to determine whether the partnership’s structure of acquiring and disposing of the rights to distribute and/or exploit the two Disney films was inherently trading.

The impact of the judgment is potentially far reaching for not only the other Eclipse partnerships but also many other film schemes that have been structured similarly. The trial is scheduled to take place on 13-14 April 2016.

The Eclipse 35 partners initially claimed the upfront interest expense of the business in their tax returns for the year ended 5 April 2007.  Now 9 years later, it looks as though this is finally the end of the road for this long running high profile case and HMRC will surely be glad to see the sun at last set on the longest Eclipse in history.

For more information please contact our Tax Investigations team on 020 7063 4639 or 0161 831 1312.

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