Taxman in legal clash over Avatar film partnership

A FILM INVESTMENT PARTNERSHIP is facing a multimillion-pound legal wrangle with HM Revenue & Customs over whether its funds constitute tax avoidance.

Ingenious Film Partners 2 is an offshoot of venture capitalist Patrick McKenna’s investment and advisory firm Ingenious Media, and includes Manchester United footballer Wayne Rooney and former England cricket captain Andrew Flintoff among its investors. It funded James Cameron’s 3D hit Avatar (pictured), which grossed $2.8bn (£1.72bn).

The dispute is the latest in a series of battles between film partnerships and the taxman, notably resulting in the Eclipse 35 investment vehicle being shut down.

Ingenious has never offered schemes involving moving funds offshore. Instead, the 70 partnership members invested a combined £672m, including borrowing £287m from Ingenious Resources, a sister company, according to the Financial Times.

Loss relief was expected on the losses incurred by the partnerships during the first or early years of trading.

Ingenious described HMRC’s decision, which was reached after a lengthy investigation, as “ludicrous” and has made moves to bring the case before a tribunal. It is likely the case will be heard towards the end of 2013.

Should Ingenious lose, its investors could face bills running to tens of millions of pounds in rebates.

James Clayton, head of Ingenious Investments, said: “These funds are self-evidently commercial as many of the the films and games have made a profit, including, of course, Avatar, the highest-grossing film of all time.”

Image credit: David W. Johnson via Flickr