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HMRC internal manual

Business Income Manual

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Films and sound recordings: old regime for films: avoidance: corporate exit schemes: chargeable events

S66, S68 Finance Act 2005 (applicable where films relief under Finance (No 2) Act 1992 were claimed)

Under the legislation to counter corporate exit schemes by companies benefited by film relief, an exit charge is imposed on the film rights company (see BIM56565) when the following conditions are met:

  1. an exit event has occurred; and
  2. a claim for accelerated deductions of production or acquisition expenditure (see BIM56010) has, at any time, been made in respect of expenditure relating to the film by the film rights company or any other company.

The film is the film in relation to which the film rights company is guaranteed income (see BIM56570).

There are no restrictions on when the claim in (b) above had to be made, or on who the claim was made by, other than it had to be made by (or on behalf of) a company. Although this may seem very wide, it would be difficult to define the company that makes the claim without leaving a loophole in the legislation whereby a group could avoid the charge by restructuring. In practice the legislation is focused because the charge only applies where there is guaranteed income from a film on which there is a claim for acceleration deductions for expenditure on the production or acquisition of the master version.

Although the making of the claim is a requirement for a chargeable event, the exit charge (see BIM56580) arises at the time of the exit event.

Exit events

Exit events are all defined in relation to the company that is the film rights company immediately before the exit event. There are three types of exit event. An exit event occurs on each occasion that:

  • the film rights company ceases to be a 75% subsidiary of the principal company (‘exit event X’); or
  • the film rights company ceases to be within the charge to Corporation Tax (‘exit event Y’); or
  • there is a relevant disposal at undervalue, by the film rights company, of the rights to guaranteed income under the guaranteed income agreement (‘exit event Z’).

For what is meant by the principal company, see BIM56565. If, exceptionally, there are a chain of transfers of the film rights company (or film rights companies) between different groups then the principal company will be a different company for each exit event.

Relevant disposal at undervalue

A relevant disposal is a disposal by the film rights company, directly or indirectly, to a third party of rights to guaranteed income under the guaranteed income agreement. A third party is defined as any person who is neither the principal company nor a 75% subsidiary of the principal company. Note that intra-group transfers are, therefore, not subject to the film exit charge.

A disposal is at undervalue if the amount of the consideration for the disposal which the film rights company receives, and brings into account as taxable income of its trade at the time of the disposal, is less than the value of the disposed rights (see BIM56585) immediately before the disposal. Note that in determining whether a disposal is at undervalue, only that consideration received by the film rights company which is both taxable income of its trade and is recognised immediately is relevant.

Disposal is widely defined for these purposes. It means any surrender, giving up, assignment or other disposal. It includes a disposal where the disposed rights are disposed of alone or where the disposal is part of a larger disposal. Where the disposed rights are disposed of as part of a larger disposal, the amount of the disposal consideration for the larger disposal which is attributable to the relevant disposal (that is, of the rights to guaranteed income under the agreement) is to be determined on a just and reasonable basis.