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Margaret Hodge is wrong to accuse Ingenious Media of tax avoidance Margaret Hodge is wrong to accuse Ingenious Media of tax avoidance
(7 months later)
Ingenious is an investment and advisory firm employing some 200 people with operations spanning private equity, venture capital, corporate finance, asset management and alternative investments. We are the UK's largest independent investor in the creative industries. Margaret Hodge, the chair of the Commons public accounts committee, yesterday accused us of "exploiting a well-intentioned tax relief to try to get individuals to mitigate their taxes".Ingenious is an investment and advisory firm employing some 200 people with operations spanning private equity, venture capital, corporate finance, asset management and alternative investments. We are the UK's largest independent investor in the creative industries. Margaret Hodge, the chair of the Commons public accounts committee, yesterday accused us of "exploiting a well-intentioned tax relief to try to get individuals to mitigate their taxes".
Not so. While it is true that individuals investing in films receive tax relief, they do so in accordance with the purpose of the legislation and not in some other inappropriate way. We have never been in the business of tax avoidance. All our activities are commercial, profit-driven and taxable. In the year ending April 2012, Ingenious posted £35m profits on which we paid £8m in UK corporation tax.Not so. While it is true that individuals investing in films receive tax relief, they do so in accordance with the purpose of the legislation and not in some other inappropriate way. We have never been in the business of tax avoidance. All our activities are commercial, profit-driven and taxable. In the year ending April 2012, Ingenious posted £35m profits on which we paid £8m in UK corporation tax.
The UK's creative economy is crucial to Britain's growth strategy at a time when, having lost so much of our traditional manufacturing base, we need to export creativity and ideas if we are to pay our way in the world. The key to future success will be investment – in talent, skills, content and content-creating businesses. The UK has an abundance of creative talent and technical skills. However our creative industries as a whole are chronically short of risk capital, which is why successive British governments have taken measures to encourage private investment. The film director Stephen Frears (My Beautiful Laundrette, Dangerous Liaisons, The Queen) has remarked that "the true heroes of films are the investors. They take the risk, after all." He is right: we are lucky to have them.The UK's creative economy is crucial to Britain's growth strategy at a time when, having lost so much of our traditional manufacturing base, we need to export creativity and ideas if we are to pay our way in the world. The key to future success will be investment – in talent, skills, content and content-creating businesses. The UK has an abundance of creative talent and technical skills. However our creative industries as a whole are chronically short of risk capital, which is why successive British governments have taken measures to encourage private investment. The film director Stephen Frears (My Beautiful Laundrette, Dangerous Liaisons, The Queen) has remarked that "the true heroes of films are the investors. They take the risk, after all." He is right: we are lucky to have them.
The film production partnerships we manage are all commercially driven and have already generated more than £600m of UK taxable income with a further £1bn expected, from movies including Avatar, Girl with a Pearl Earring, The Best Exotic Marigold Hotel, Die Hard 4.0 and Shaun of the Dead. Our latest film, Life of Pi, has taken $575m (£375m) at the global box office and received 11 Oscar nominations.The film production partnerships we manage are all commercially driven and have already generated more than £600m of UK taxable income with a further £1bn expected, from movies including Avatar, Girl with a Pearl Earring, The Best Exotic Marigold Hotel, Die Hard 4.0 and Shaun of the Dead. Our latest film, Life of Pi, has taken $575m (£375m) at the global box office and received 11 Oscar nominations.
It defies reason for this level of commercial success to be characterised as tax avoidance and stands in complete contrast to transfer pricing, which allows international companies to move their UK revenues away from UK tax. On the contrary, our film production partnerships are taxed in the UK according to receipts from their films' worldwide exploitation across cinema, DVD, television and merchandising, so the UK exchequer benefits from each and every penny of film revenue.It defies reason for this level of commercial success to be characterised as tax avoidance and stands in complete contrast to transfer pricing, which allows international companies to move their UK revenues away from UK tax. On the contrary, our film production partnerships are taxed in the UK according to receipts from their films' worldwide exploitation across cinema, DVD, television and merchandising, so the UK exchequer benefits from each and every penny of film revenue.
We have always sought a clear and constructive relationship with HM Revenue & Customs, and before launching Ingenious Film Partners in 2005 received its tacit approval to the business model and partnership structure. However, in recent times it appears to us that there has been a tendency to see all film investment as abusing tax rules. This is absolutely not the case.We have always sought a clear and constructive relationship with HM Revenue & Customs, and before launching Ingenious Film Partners in 2005 received its tacit approval to the business model and partnership structure. However, in recent times it appears to us that there has been a tendency to see all film investment as abusing tax rules. This is absolutely not the case.
The public accounts committee had a valuable opportunity to distinguish between commercially driven investment and tax avoidance, which it failed to do because it did not conduct a thorough investigation into the difference between the two. Indeed, the committee even appeared to categorise government-sponsored film sale and leaseback partnerships – which allowed a deferral of tax over 15 years – as so-called "exit schemes", which typically move partnership assets or residency offshore beyond UK tax.The public accounts committee had a valuable opportunity to distinguish between commercially driven investment and tax avoidance, which it failed to do because it did not conduct a thorough investigation into the difference between the two. Indeed, the committee even appeared to categorise government-sponsored film sale and leaseback partnerships – which allowed a deferral of tax over 15 years – as so-called "exit schemes", which typically move partnership assets or residency offshore beyond UK tax.
Our film sale and leaseback partnerships were established under specific government legislation to attract private investment into film and remain in the UK, subject to UK tax. Individuals who contributed additional capital to their partnership to acquire more films have received capital allowances on the cost of the films in the ordinary manner and the partnership is taxed on the income from the films' exploitation. They are categorically not exit schemes.Our film sale and leaseback partnerships were established under specific government legislation to attract private investment into film and remain in the UK, subject to UK tax. Individuals who contributed additional capital to their partnership to acquire more films have received capital allowances on the cost of the films in the ordinary manner and the partnership is taxed on the income from the films' exploitation. They are categorically not exit schemes.
It is ironic that the committee in its report on tackling tax avoidance recommends an advance ruling system in order to deter contrived avoidance and increase certainty in the tax system. We lobbied for a similar arrangement to be included in finance legislation in 2004 and again in 2007, but the government of the day did not support the idea on either occasion.It is ironic that the committee in its report on tackling tax avoidance recommends an advance ruling system in order to deter contrived avoidance and increase certainty in the tax system. We lobbied for a similar arrangement to be included in finance legislation in 2004 and again in 2007, but the government of the day did not support the idea on either occasion.
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