Samarkand Film Partnership No 3 & Others and related cases v The Commissioners for Her Majesty's Revenue & Customs & The Queen on the application of Proteus Film Partnership No 1 v The Commissioners for Her Majesty's Revenue & Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 April 2015 |
| Neutral Citation | [2015] UKUT 0211 (TCC) |
| Appellant | A PROTEUS PARTNER |
| Respondent | HER MAJESTY’S REVENUE AND CUSTOMS |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Appeal Number | JR/06/2012 |
[2015] UKUT 0211 (TCC)
Appeal number FTC/96-104/2011
Claim number TCC-JR/06/2012
INCOME TAX –partnerships engaging in sale and leaseback of films and partners
claiming losses under film acquisition relief provisions ss130-140 ITTOIA –
whether trading - held no - appeal dismissed – if trading, whether business carried
on on a commercial basis – amount of acquisition expenditure incurred in respect
of original master version of The Queen – whether partnership loss rules s118ZE
ICTA restrict use of any loss – whether Proteus’s relevant period less than 12
months s138 of ITTOIA – whether expenditure of a revenue nature
JUDICIAL REVIEW – whether claimants had legitimate expectation derived from
HMRC’s Business Income Manual – whether claimants had legitimate expectation
derived from HMRC’s settled practice – whether HMRC acted with conspicuous
unfairness
IN THE MATTER OF JUDICIAL REVIEW PROCEEDINGS
AND ON APPEAL FROM THE FIRST-TIER TRIBUNAL (TAX CHAMBER)
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
BETWEEN SAMARKAND FILM PARTNERSHIP No 3
PROTEUS FILM PARTNERSHIP No 1
THE PARTNERS OF SAMARKAND
THE PARTNERS OF PROTEUS
A PROTEUS PARTNER Appellants
- and –
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS Respondents
AND BETWEEN THE QUEEN
on the application of
SAMARKAND FILM PARTNERSHIP No 3 Claimant
- and –
2
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS Defendants
AND BETWEEN THE QUEEN
on the application of
PROTEUS FILM PARTNERSHIP No 1 Claimant
- and –
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS Defendants
Tribunal:
Mr Justice Nugee
Judge Greg Sinfield
Sitting in public at the Royal Courts of Justice, The Rolls Building, Fetter Lane,
London EC4 between 17 and 20 June 2014
Michael Furness QC and Conall Patton, counsel, instructed by Freshfields
Bruckhaus Deringer LLP, solicitors, for the Appellants
John Tallon QC and Jonathan Swift QC with David Yates and Joanne Clement,
counsel, instructed by the General Counsel and Solicitor to HM Revenue and
Customs, for the Respondents
© CROWN COPYRIGHT 2015
3
DECISION
Introduction
1. The Appellants appeal against the decision of the First-tier Tribunal (Judge
Charles Hellier and Mr John Robinson - “the FTT”) released on 20 September 2011,
[2011] UKFTT 610 (TC) (“the Decision”). Save as otherwise indicated, paragraph 5 references in square brackets in this decision are to the paragraphs in the Decision.
2. The issue in the appeal was whether the partners in two partnerships,
Samarkand and Proteus, which acquired and leased films under a sale and leaseback
arrangement, were entitled to loss relief in respect of tax losses that, it was claimed,
arose from expenditure on the acquisition of films and certain other costs incurred by 10 the partnerships.
3. In summary, 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 under arrangements that incorporated pre-ordained
elements that included the acquisition of the films and a lease back to the seller via a 15 company in return for fixed, increasing, secured and guaranteed rental payments for a
15 year period. The cash flows and intended fiscal consequences of the transactions
can be seen from the following simplified version:
(1) the partners borrowed 8 from the Bank of Ireland (“the Facility
Bank”); 20
(2) the partners contributed 10 to the partnership, ie 8 borrowed from the
Facility Bank and 2 from their own funds;
(3) the partnership bought a film from the seller for 9;
(4) the partnership leased the film to Haiku Releasing Ltd (“Haiku”) for a
period of 15 years in return for fixed but escalating rentals; 25
(5) Haiku licensed the film directly or indirectly back to the seller;
(6) the seller paid or procured the payment of 8 to Haiku (retaining a
“producer’s net benefit” of 1);
(7) Haiku placed 8 on deposit to secure the guarantee of its rental
obligations; 30
(8) the partners’ loans and interest were discharged from the rental
payments made out of Haiku’s deposit; and
(9) the partnership paid a fee of 1 to Future Capital Partners Limited
(“Future”) who acted as agent for the partnership and negotiated the
transaction on its behalf and provided other services. 35
4. The partners claimed losses under film acquisition relief provisions in sections
130-144 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). The
availability of relief for the losses of a partnership, and the allowability of deductions
in computing partnership income for expenditure on films depended on the
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