The UK government will make no exception for sale-and-leaseback funding arrangements under new tax rules, it was confirmed today.
On Friday, a Treasury briefing effectively closed the door on so-called GAAP finance schemes, which some estimates suggested could have raised up to $3.5bn this tax year. Click here to see Revenue statement.
Those arrangements depended on what is called 'sideways loss relief', through which wealthy individuals, working through a partnership, could offset tax against expected losses on a film.
Such relief has also been a big part of the attraction for investors in partnerships acting as a vehicle for existing Section 42 and 48 arrangements, which have funded such high-profile British films as The Queen and Casino Royale (pictured).
Since the announcement was made, there has been much lobbying to make sale and leaseback an exception. But today the Revenue confirmed that there would be no exceptions.
'The proposed restrictions apply to partnership trading losses which arise from film production in the same way as those arising from other activities,' said a Revenue spokesman. ' And this will be the case whether or not the partnership is able to benefit from the 'old' film reliefs.'
Although such arrangements have not been picked up by the Revenue in previous years, the spokesman said it was now easier to spot avoidance. 'Under new disclosure rules we can now act decisively to close loopholes.'
He again emphasised that the new rules were not aimed at the film industry with the same rules applying to other industries such as forestry and he ruled out any hope that lobbying may be effective.
But for those involved in sale-and-leaseback arrangements and as producers, the future has been thrown into doubt.
Although Section 42 and 48 is about to enter its final financial year of existence (2007-2008), it is still a big part of the funding for an estimated 90 films.
The UK Film Council - and the Revenue itself - has today been drawing together details of the films affected to get a sense of the scale of the problem.
Worried UK producers are demanding answers from the government about whether sale-and-leaseback arrangements have been caught up in the Treasury briefing. Last week's crackdown was aimed at stopping the 'sideways tax loss relief' at the heart of so-called GAAP schemes.
But there is now widespread fear among the industry about the impact on sale-and-leaseback arrangements. If the law as stated was followed to the letter, some Section 48 films are now ineligible for sale-and-leaseback money.
UK producers group PACT had also been gathering information to lobby for the exclusion of sale and leaseback. Tim Willis, PACT's director of film, said there seemed to be 'damaging unintended consequences' which needed urgent resolution.
PACT is trying to ascertain the scale of the damage, which will effect different films in different ways. 'We need to know who is going to get hurt.'
He said PACT would continue to lobby to make sale and leaseback an exception. 'We need to explain that those involved are often one or two men bands putting their neck on the line to cashflow sale and leaseback according to established practice.'
Producer Mike Downey of Film & Music Entertainment said there was an understanding that GAAP had been shut down but, inadvertently or not, the effect may be much greater. 'Everyone is now running around making lists for the Revenue to quantify what damage has been done,' he said.
Ironically, the film industry's difficulties come as UK Prime Minister Tony Blair announced that British artshad entered a 'golden age.'
In a keynote speech at Tate modern, the Prime Minister put that success down to the 'mixed economy' model, where a combination of public and private investment has produced spectacular results.