HSBC faces a £1.3bn lawsuit brought by 371 investors relating to a Disney film financing scheme that was deemed to be a tax avoidance vehicle by HM Revenue & Customs.
The investors have filed a claim at London’s High Court against HSBC UK for alleged losses caused by the role of its private bank in the development and marketing of a series of film financing schemes known as the Eclipse Partnerships.
The claimants, represented by law firm Edwin Coe, are alleging they were told that Eclipse would trade the rights to blockbuster Disney films including Enchanted. However they claim none of the rights to any of these films were ever actively traded and say that instead of investment returns they have ended up with losses and potential tax liabilities for investing in the partnerships.
Tax deferral structures in film investment were first introduced by the Labour government in 1997 to help independent producers and encourage investment in the UK film industry. Investors in authorised film finance schemes could offset the investment against their taxable income.
Eclipse was open to investors between 2006 and 2008 and was marketed as a legitimate tax efficient investment. It is believed that 750 people ranging from footballers to accountants invested around £2.3bn in capital in Eclipse and obtained loans to supplement their investment. The interest on the loans was meant to have been covered by their eventual return on their film exploitation rights investment.
HSBC’s private banking arm helped to promote the scheme and is estimated to have made £25m in fees for its role in Eclipse.
In 2015 the Court of Appeal ruled in favour of HMRC on Eclipse Film Partners and backed HMRC’s view that the arrangement amounted to tax avoidance on the grounds that there was no trade being carried out — a pre-requisite for investors to qualify for tax reliefs
Many investors said they now face tax demands from HMRC and a number are facing bankruptcy as a result.
Chris Upham, a retired policeman who is the lead claimant in the group legal action, said in a statement he had been attracted by an opportunity to invest in films but was now suing after he and his wife had put in £25,000 in 2007, which he says he has lost.
The claim form was filed this month and the claimant group of 371 investors is seeking £1.3bn in loss and damages. A trial is not expected to happen until 2021 at the earliest.
HSBC said it would not comment on the ongoing legal issue.
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