Samarkand Film Partnership No.3 v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 September 2011 |
| Neutral Citation | [2011] UKFTT 610 (TC) |
| Date | 20 September 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 610 (TC)
Charles Hellier (Judge) (Chairman), John Robinson
Jonathan Peacock QC and Jolyon Maugham, instructed by Herbert Smith LLP for the Appellants
John Tallon QC and David Yates, instructed by the HMRC, for the Respondents
Income tax - partnerships engaging in sale and leaseback of one or two films - loss claimed by partners from film acquisition relief provisions of Income Tax (Trading and Other Income) Act 2005 section 130ss. 130-140 ITTOIA. issues arising: (1) was partnership carrying on a trade - held no; (2) was business carried on on a commercial basis (Income Tax (Trading and Other Income) Act 2005 section 380s. 380,Income Tax (Trading and Other Income) Act 2005 section 381381,Income Tax (Trading and Other Income) Act 2005 section 384384 ICTA 1988) - held no; (3) was business carried on with expectation of profit - yes; (4) was the business the exploitation of films (Income Tax (Trading and Other Income) Act 2005 section 136 subsec-or-para as. 136(a) ITTOIA) - yes; (5) was the relevant expense incurred on the acquisition of films (s. 130(3))? (6) was it incurred wholly and exclusively for the business? (7) what was the effect of the "relevant period" provision in Income Tax (Trading and Other Income) Act 2005 section 138 subsec-or-para 8s. 138(8) what was the effect of the partnership loss rules in Income and Corporation Taxes Act 1988 section 118ZEs. 118ZE and the 2005 Regulations? (9) were fees paid to an arranger of the transactions capital in nature? (10) were such fees paid wholly and exclusively for the purposes of the partnership business? (11) to what accounting period were such fees properly attributable?
1.The partners in two partnerships, Samarkand and Proteus, claim the benefit of loss relief in respect of tax losses they say arise from (1) expenditure on the acquisition of films, and (2) certain other costs, incurred by their respective partnerships.
2.Samarkand acquired interests in the films The Queen and Irina Palm in 2006/7 and Proteus acquired an interest in Oliver Twist in 2005/6. In each case the films were acquired as part of a single transaction which encompassed their acquisition and their associated lease back in return for fixed, increasing, secured and guaranteed rental payments for a 15 year period.
3.The availability of relief for the losses of a partnership, and the allowability of deductions in computing partnership income for expenditure on films are dependent upon the satisfaction of a number of statutory conditions. HMRC say that many of those conditions were not satisfied and that consequently the partners were not entitled to the benefit of loss relief or that it should be limited. We set out in the following section the relevant legislation and indicate there the conditions which were debated before us.
4.Proteus appeals against a conclusion in a closure notice issued by the Respondents for the year to 5 April 2006 that an adjustment was required to the losses claimed by the partnership to reduce them from £20,229,747 to nil.
5.Samarkand appeals against a conclusion in a closure notice issued by the Respondents for the year to 5 April 2007 that an adjustment was required to the losses claimed by the partnership to reduce them from £11,423,606 to nil.
6.Sample partner E appeals against a closure notice issued by the Respondents in relation to the year ended 5 April 2006 in which HMRC concluded that the losses claimed deriving from the Proteus partnership should be reduced to nil.
7.Taxes Management Act 1970 section 28ZASection 28ZA TMA 1970 provides that when an enquiry is in progress a question arising in connection with the subject matter of the enquiry may be referred to the tribunal for a determination.
8.The partners in Samarkand made a referral to the tribunal under this section to determine the following questions:
(2) Does any restriction apply to the use of any trading losses by the members of Samarkand as a consequence of the amount of capital contributed, or treated as contributed, by those members for the purposes of ICTA 1988 Income and Corporation Taxes Act 1988 section 118ZE118ZE and the Partnerships (Restrictions on Contributions to a Trade) Regulations 2005)?
-
(3) Did Samarkand (during 2006/07) trade:
(a) in or by the end of the year of assessment on a commercial basis and with a view to the realisation of profits (for the purposes of ICTA 1988 Income and Corporation Taxes Act 1988 section 380sections 380 & Income and Corporation Taxes Act 1988 section 384384)?
(b) throughout the period in question on a commercial basis and in such a way that profits in the trade could reasonably be expected in the period or within a reasonable time thereafter (for the purposes of ICTA 1988 Income and Corporation Taxes Act 1988 section 381section 381)?
9.The partners in Proteus made a joint referral to the tribunal under section 28ZA in which the tribunal was asked to determine the following questions:
(1)does any restriction apply to the use of any trading losses by the members of Proteus as a consequence of the amount of capital contributed, or treated as contributed, by those members (for the purposes of ICTA 1988 section 118ZE and the Partnerships (Restrictions on Contributions to a Trade) Regulations 2005)?
-
(2)Did Proteus (during 2005/06) trade:
(a) in or by the end of the year of assessment on a commercial basis and with a view to the realisation of profits (for the purposes of ICTA 1998 sections 380 & 384)?
(b) throughout the period in question on a commercial basis and in such a way that profits in the trade could reasonably be expected in the period or within a reasonable time thereafter (for the purposes of ICTA 1988 section 381)?
10.The tribunal directed that these appeals and referrals be heard together. Although there were some differences they raised common issues of fact and law. This decision is in respect of each of them.
11.The remainder of this decision is structured thus:
IIThe statutory provisions and the issues arising
IIIThe Evidence, the general factual findings, and the terms of the contractual documents
IVFurther factual findings relevant to the trading issue and expenditure on the films and the Rights
VWere the partnerships conducting a trade?
VIIf so was that trade carried on on a commercial basis?
VIIIf there was a trade, was that trade carried on with a view to profit?
VIIIIf there was a trade, was that trade the exploitation of films?
IXHow much expenditure was incurred on the acquisition of films and film rights by the partnerships?
XIf there was a trade, was that expenditure incurred wholly and exclusively for the purposes of the partnership trade?
XIThe fees paid by the partnerships;
(a) findings of fact
(b) were the fees capital in nature?
(c) were they incurred wholly and exclusively for the trade (if there was one)?
(d) to what accounting periods were they correctly attributable?
(e) summary
XIIDo the partnership loss rules restrict the availability of losses?
XIIIIn the case of Proteus is any loss to be restricted by the "relevant period" provision?
XIVSummary and conclusions
XVRights of Appeal
12.We note that the Appellants maintain that in seeking to deny loss relief HMRC is traversing statements it made in its Business Income Manual on which the Appellants legitimately relied. The Appellants, we were told, had commenced judicial review proceedings which had been stayed pending these appeals. The Appellants did not ask us to address whether they had a legitimate expectation to which this tribunal should give effect.
13.ITTOIA 2005 contained in Income Tax (Trading and Other Income) Act 2005 section 130sections 130 to 144 provisions which afforded special reliefs for expenditure on (a) the production of sound recordings and films and (b) the acquisition of sound recordings and films. These provisions applied for 2005-06 and were relevant to Proteus' appeal.
14.Finance Act 2006 section 47Section 47 FA 2006 withdrew these provisions so far as they related to films and replaced them with a new code of relief for expenditure on the production (and not the acquisition) of films. However so far as concerned expenditure on the acquisition of films s. 47 withdrew the relief only where:
(i) the film commenced principal photography on or after 1 April 2006, or
(ii) the expenditure was incurred on or after 1 October 2007.
15.The Proteus appeals relate to 2005-06 and are unaffected by these provisions. The Samarkand appeals relate to the 2006-07 year and are therefore governed by the ITTOIA 2005 as amended by s. 47 FA 2006. But the principal photography on all the films in question began before 1 April 2006, and its expenditure was incurred before 5 April 2007. As a result the amendments made by s. 47 do not affect the operation of Income Tax (Trading and Other Income) Act 2005 section 133s. 133 to 144 ITT0IA 2005 as regards the Samarkand appeals. We therefore consider those provisions without distinction between the relevant years.
16.The ITTOIA provisions give relief for "acquisition expenditure": that is "expenditure incurred on the acquisition of the original master version of a film" (Income Tax (Trading and Other Income) Act 2005 section 130 subsec-or-para 3s. 130(3)). By Income Tax (Trading and Other Income) Act 2005 section 130 subsec-or-para 4s. 130(4) references to the "original master version" include any rights in the original master versions of a film that are held or acquired with it". By Income Tax (Trading and Other Income) Act 2005 section 132 subsec-or-para 1section 132(1) the original master version is defined to mean the original master negative.
17.Expenditure on the acquisition of a film which a trader intended to exploit would normally be capital expenditure and not eligible for a deduction in computing...
To continue reading
Request your trial
-
Ingenious Games LLP; Inside Track Productions LLP; Ingenious Film Partners 2 LLP
...Mr Milne distinguishes the facts in Ensign, and those in the present appeals, from the later cases of Samarkand Film Partnership No 3 TAX[2011] TC 01453, Eclipse Film Partners No 35 LLP TAX[2012] TC 01963Eclipse Film Partners No 35 LLP v R & C Commrs TAX[2015] BTC 10 and Degorce TAX[2013] T......
-
Seven Individuals v Revenue and Customs Commissioners
...trading activities uncommercial could not be said to be perverse or unsupported by evidence.[42] In Samarkand Film Partnership No 3 [2011] TC 01453, the FTT quoted this passage from Wannell v Rothwell and said (at [253]):It seems to us that the serious interest in a profit is at the root of......
-
Revenue and Customs Commissioners v Balhousie Holdings Ltd
...to be treated as a single, composite transaction instead of two separate transactions: see for example Samarkand Film Partnership No 3 [2011] TC 01453 (the decisions in the Upper Tribunal and the Court of Appeal did not call this into question as a matter of principle). [62] Paragraph 35 of......
-
TC03545: Acornwood LLP and related appeals
...[358]A number of observations about the "on a commercial basis" test were made by this tribunal in Samarkand Film Partnership No 3TAX[2011] TC 01453 ("Samarkand"), in which structures similar in broad outline to the Icebreaker Partnerships were under consideration; we deal with those struct......
-
Weekly Tax Update - Monday 31 October 2011
...regarding loss relief could be triggered to prevent sideways loss relief being available to the partners. www.bailii.org/uk/cases/UKFTT/TC/2011/TC01453.html 3.3. EU Commission and proposals for an EU accounting The EU has issued proposals for a consolidated accounting directive along with a......