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HMRC internal manual

Business Income Manual

Films and sound recordings: old regime for films: avoidance: corporate exit schemes: agreements that guarantee an amount of income

S66 Finance Act 2005 (applicable where films relief under Finance (No 2) Act 1992 was claimed)

An agreement that guarantees an amount of income is defined to include any agreement, or any part of an agreement which is designed to secure the receipt of that amount (or at least that amount) of income. This does not imply certainty, but rather that the receipt is reasonably likely. A good test of whether an agreement is designed to secure an amount of income is whether it is possible to calculate the minimum amount of income that may be received with a reasonable degree of accuracy. Indeed, such a calculation is needed to calculate the amount of the corporate exit charge.

It does not matter when that income would be received under the agreement: the income may arise (as it does in tax deferral schemes) many years after the agreement is entered into.

Guaranteed income under the agreement is any guaranteed income from the exploitation of a film, which, if it were received by the film rights company when that company is carrying on the trade, would be income from the trade. For example, in a sale and leaseback arrangement the leasing income received by a company that has acquired and leased back a film is the income it receives from its exploitation of the film, because it is exploiting the film by leasing it out.

The legislation applies equally if the film rights company has succeeded to rights to receive income under an agreement as it does to a film rights company that was the original person entitled to receive income under the agreement. So the film rights company does not need to be the company that originally acquired (and leased back) the film, nor the company that has claimed a deduction for expenditure on the production or acquisition of the film. Neither does it need to own, or have ever owned, the film.