How Captain Jack Sparrow Helped His Mate Cut UK Taxes
November 6, 2014 - accent chair
For someone who invested roughly $10 billion of his clients’ income in films, Tim Levy doesn’t arrangement most unrestrained for uncover business.
No film memorabilia greets visitors to his offices in London’s Mayfair district. Some of a films he corroborated were “turkeys,” Levy said. He struggles to remember others.
For Levy, 45, films charity something he could sell to his banker, hedge-fund-trader and sporting-world clients: authorised taxation breaks.
Europeâs QE Quandary
Now a U.K. supervision is observant a manners were abused — and perfectionist some of a income back. A regulatory crackdown on taxation incentives creatively recognised to support British films has left tens of thousands of people confronting requests for payment, taxation authorities say. Levy says he didn’t mangle any laws.
Related Video: Levy Appeared Before U.K. 2012 Parliament Committee
“Tax has zero to do with morality,” pronounced Jamaica-born Levy, with an accent reflecting his years during an English boarding school. “I’m an entrepreneur. we was perplexing to build a business.” He spoke in a array of face-to-face and phone interviews and e-mails from May to this month.
Levy’s investment firm, Future Capital Partners Ltd., used precedence and accounting techniques to spin movie-distribution deals into reduce taxes. The organisation sealed deals with Walt Disney Co. (DIS:US), including for dual “Pirates of a Caribbean” films, creation it one of a biggest players in an attention that exploded after a taxation service for artistic industries was authorized in 1997.
Many of those deals did tiny to assistance British movie-makers, were shaped predominantly for tax-saving purposes, didn’t do what council dictated and shouldn’t have fitting deductions, according to Her Majesty’s Revenue Customs, or HMRC, Britain’s chronicle of a U.S. Internal Revenue Service.
The U.K. organisation has filed polite lawsuits opposite investors in during slightest a dozen partnerships total by Future Capital, Levy told a parliamentary cabinet in Dec 2012. They were partial of a agency’s broader debate to tackle taxation avoidance.
“The form of taxation arrangements this organisation were compelling are demonstrative of a settlement of function that needs to be cramped to history,” pronounced Toby Quantrill, an mercantile confidant during Christian Aid, a charity, and a former consultant during investigate organisation a Tax Justice Network. Escaping taxes angers a public, shifts a weight to others and threatens open services, he pronounced in an e-mail.
Among a hundreds of members of those partnerships, according to open filings, were Sir Alex Ferguson, one of English soccer’s most-decorated coaches, Piero Novelli, tellurian authority of mergers and acquisitions during UBS AG and Eirik Winter, Citigroup Inc.’s conduct of Nordic segment corporate and investment banking. The 3 declined to criticism or didn’t respond to requests for comment.
Government vigour on taxation breaks reached a new tallness in July. New manners came into outcome afterwards requiring anyone concerned with tax-reduction structures being challenged by HMRC to compensate a check upfront, even if there’s an ongoing justice box and a superb volume dates from years ago.
As many as 43,000 people who invested in a operation of instruments can design to accept remuneration notices by a finish of 2016, HMRC pronounced in a news published in July. Levy, who says he invested some of his possess income in Future Capital funds, declined to contend if he’d been contacted by taxation authorities.
“This changes a diversion significantly for people who have used tax-avoidance schemes,” pronounced Nick Skerrett, a London-based taxation profession with Simmons Simmons LLP who has no tie to a film-finance deals. “If they can’t pay, they could go bankrupt.”
Tax has pushed a approach to a front of a tellurian agenda. In a U.S., President Barack Obama’s administration is perplexing to stop businesses from regulating takeovers to pierce abroad in hunt of reduce rates, a technique called inversion. In May, Credit Suisse Group AG (CSGN) concluded to compensate $2.6 billion in penalties for assisting Americans evasion taxes. French President Francois Hollande has stepped adult a country’s efforts to pursue evaders.
Tax deterrence by companies and people costs European economies as most as 1 trillion euros a year, a European Union estimates. Much of it is legal, or during slightest not clearly illegal, and governments spend a lot of time perplexing to tighten a loopholes that promoters such as Levy use.
Film taxation breaks have valid argumentative in a U.S. as well, for a opposite reason: states outbid any other in charity them. In September, California process makers responded to prolongation withdrawal a state by tripling a volume of income accessible any year, to $330 million — notwithstanding an Apr 30 state news that faulted subsidies as ineffectual and “a competition to a bottom” between states.
Levy didn’t start out looking for a career in tax. After nearing in England from Jamaica in a early 1980s, he played on a cricket group during Sherborne School. Realizing he wasn’t good adequate to play professionally, he skipped university and came to London to work in insurance. He did several jobs, offered policies to cab drivers and arranging healthy disaster insurance, before determining in 1996 a trade didn’t fit his ambitions.
Just after quitting his job, he met a Danish businessman named Bjorn Stiedl. Together they came adult with a thought of starting a business to take advantage of a taxation write-off for a cost of creation smaller films, announced in 1997 by then-Chancellor of a Exchequer Gordon Brown, Levy said. The taxation mangle authorised income spent on low-budget British films to validate for an upfront taxation deduction.
At their simplest, many of a deals total by Levy and opposition promoters authorised investors to deposit in film-finance partnerships, regulating mostly borrowed income along with their possess capital.
After lifting collateral from hundreds of investors, a film partnership typically would buy a right to discharge a new British movie. The partnership afterwards would franchise a film rights behind to a dilettante distributor, that would arrange for it to be shown in theaters or promote on television.
Investors could compensate off a borrowed supports with a reduction and maybe make a profit. In addition, investors got a taxation reduction for a volume of their investment, including a borrowed money, shortening a taxation owed.
By 2000, Levy had split association with Stiedl –- who after went to jail on separate rascal charges and couldn’t be reached for criticism around several channels — and founded his possess firm, Future Capital.
It and competitors such as Patrick McKenna’s Ingenious Media Holdings Plc found there was no necessity of takers for investments that betrothed taxation breaks during a years before Lehman Brothers Holdings Inc. filed for failure in 2008. New fortunes were being minted roughly daily in London’s financial districts of Mayfair, Canary Wharf and Square Mile, north of a Thames River. McKenna, who testified before a parliamentary cabinet along with Levy in 2012, declined by a orator to comment.
Levy pronounced he frequency met his customers. Instead, his organisation relied on accountants and resources advisers who endorsed a products to their clients — in lapse for a elect from Future Capital.
“This is ideally normal tellurian behavior,” pronounced Sylvester Vince-Odozi, a former Future Capital worker who now runs his possess investment firm. “If we are creation 300 grand a year and we are profitable 100 grand of tax, that’s life. If we are creation $5 million a year and we are profitable $2 million a year in tax, that’s a b-tch.”
Future Capital’s price income jumped to 37 million pounds by 2005 from 141,000 pounds 3 years earlier, according to corporate filings during a U.K. companies’ registry. The organisation started renting a yacht during a Cannes Film Festival on a French Riviera, that it used to horde annual parties. Financial advisers and film producers would sip Champagne, while Levy would hunt for new film projects.
Levy, who pronounced he paid himself an normal of about 2 million pounds a year during Future Capital, done adequate income to account a 2010 vessel outing with reality-television star Bear Grylls opposite a formerly solidified Northwest Passage to lift recognition for meridian change.
Eventually, financier direct outstripped a supply of British-made cinema that Future Capital could deposit in. To keep growing, Levy indispensable some-more films, he said.
He started drifting frequently to Los Angeles, contracting lawyers and accountants to capacitate him to request a British taxation mangle to Hollywood films.
“We worked out ways to get turn a stipulations of a British taxation relief,” he said. “And we did it wholly within a proportions of a law.”
In a Golden State, Future Capital found a biggest understanding ever. It lifted about 840 million pounds by an entity it founded called Eclipse Film Partners No. 35 LLP. It bought rights to discharge “Underdog” and “Enchanted,” dual Disney cinema expelled in 2007, according to a Dec justice statute from a successive brawl with HMRC.
Court rulings uncover that other Eclipse partnerships done identical deals to discharge dual of Disney’s Pirates of a Caribbean films, starring Johnny Depp as Captain Jack Sparrow, as good as “National Treasure: Book of Secrets,” starring Nicolas Cage.
A Disney orator didn’t respond to a phone call or an e-mail seeking comment.
Among a 289 investors in Eclipse 35 when it was total were Karl Robijns, a former conduct of oil trade and ex-partner during Goldman Sachs Group Inc., as good as Ferguson, Novelli, Winter and dozens of youth bankers, traders and income managers, according to a Jun 2 filing with a U.K.’s Companies House.
Novelli declined to comment, as did Robijns, who left Goldman progressing this year. Winter didn’t respond to several requests for criticism sent by e-mail and present message, and calls to his phone weren’t answered. Phil Townsend, a orator for Manchester United (MANU:US), where Ferguson coached for some-more than 26 years, pronounced a late soccer manager didn’t wish to comment.
Future Capital done about 80 million pounds of fees in 2007. Levy pronounced during slightest half that went to compensate lawyers, advisers and experts. It was a company’s best year and Levy pronounced he awarded himself a 5 million-pound bonus.
It was also a commencement of a finish for Future Capital. That year a British supervision transposed existent film taxation breaks with distant some-more limiting rules. HMRC also became increasingly assertive in severe film deals.
The aged taxation supplies “were abused by some people seeking to benefit a personal vast taxation reduction for a tiny outlay,” HMRC orator Michel Rubini pronounced in a statement. The new regime has been successful in attracting investment and renouned with filmmakers, he said.
The taxation organisation hold inquiries into 127 Future Capital deals including Eclipse 35, Levy told British lawmakers during a parliamentary cabinet conference in 2012.
While HMRC didn’t bottom a box opposite Eclipse 35 on a fact that a films it saved were American, council members during a conference weren’t pleased.
“The whole purpose was to deposit in a creation of films in Britain,” pronounced Public Accounts Committee Chair Margaret Hodge. “This is only potty.”
In 2009, HMRC dynamic that Eclipse 35 wasn’t a genuine business and shouldn’t get relief, according to a Dec. 20, 2013, statute by a dilettante taxation justice rejecting a partnership’s bid to overturn that decision.
When a statute opposite Eclipse 35 came in December, David Gauke, a youth Minister during a British Treasury, pronounced that a partners would substantially finish adult profitable some-more in taxation than if they had never invested during all. Eclipse’s lawyers have appealed a ruling.
Maurice Nadjar-Primack, a former equities merchant during Barclays Plc in London, pronounced he regretted investing in a Eclipse fund. “Looking for taxation optimizations, it wasn’t a best thing to do,” he pronounced in a phone interview. But, he said, HMRC had “moved a goalposts.”
Levy says he spent a lot of income on lawyers to make certain his supports didn’t abuse a rules.
Other promoters have been criminally prosecuted by HMRC for fraudulently abusing a film relief. Next year, 13 people, including former Royal Bank of Scotland Group Plc and Jefferies Group LLC bankers, are scheduled to go on trial, indicted of investing in their personal ability in a film-production try to equivocate profitable a total 2.5 million pounds of tax.
All of a defendants, detached from dual who couldn’t attend a hearing, pleaded not guilty to a charges in September.
As a vigour on his supports intensified, Levy attempted to pierce Future Capital divided from film into skill and immature appetite projects. Then in Apr he announced a organisation would stop arising new products and would conduct out a existent investments since of “unprecedented moves by HMRC to tackle marketed taxation formulation structures.”
He has a new London-based entity called Cocoon Wealth LLP that he says will pursue some-more normal venture-capital investments, while contracting some of a same people as Future Capital and regulating a same business address.
“Nothing we are going to do going brazen will be tax-motivated,” he said.
Asked in a Sept. 25 e-mail how he felt about Future Capital investors confronting losses, Levy responded: “The universe altered in a approach nothing of us could have likely –- and we have all been severely impacted by this.” He pronounced conjunction he nor Future Capital “carry any shortcoming for a approach things have developed.”
On Oct. 8, Levy sent an e-mail to clients about Cocoon’s Green Energy Solar Fund. It’s a low-risk and environmentally accessible investment that will broach inflation-proof returns, he pronounced in a message, seen by Bloomberg and accurate by Levy.
The initial of a 7 advantages listed for a fund: “Reduce or discharge your bearing to estate tax.”
To hit a reporters on this story: Kit Chellel in London during firstname.lastname@example.org; Jesse Westbrook in London during email@example.com
To hit a editors obliged for this story: Anthony Aarons during firstname.lastname@example.org Anne Swardson