BIM56565 - Films and sound recordings: old regime for films: avoidance: corporate exit schemes - companies affected

S66-S71 Finance Act 2005 (applicable where films relief under Finance (No 2) Act 1992 was claimed)

»Ê¹ÚÌåÓýapp legislation to counter film corporate exit schemes exploiting the old film reliefs (see BIM56010) only applies to companies which are part of a group of companies.

»Ê¹ÚÌåÓýapp exit charge applies to a company which is a film rights company to which an exit event (see BIM56575) occurs.

A film rights company is a company that, immediately before an exit event occurs:

  • is a 75% subsidiary of the principal company of a group of companies (‘the principal companyâ€�), and
  • carries on a trade or business which consists of or includes the exploitation of films or the receipt of income derived from films, and
  • is party to an agreement which guarantees it an amount of income (see BIM56570) arising from the exploitation of a film.

Note that whilst the film rights company has to be party to such an agreement, and therefore has rights arising from the exploitation of a film (see BIM56570), it does not need to be, or to have ever been, the owner of the master version of the film.

»Ê¹ÚÌåÓýapp legislation works by looking at disposals outside of a group of companies, and therefore definitions of what is meant by a group are required. »Ê¹ÚÌåÓýapp legislation does this by linking into the rules for group relief (see CTM80100 onwards). In doing so, the exit charge legislation is able to link into the extensive anti-avoidance provisions related to group relief, and in particular to what is and is not a group company.

Two companies are deemed to be members of a group of companies if one is the 75% subsidiary of the other, or both are 75% subsidiaries of a third company.

»Ê¹ÚÌåÓýapp principal company of a group of companies, of which the film rights company is part, means a company:

  • which could claim group relief for any trading losses surrendered by the film rights company, and
  • which is not itself the 75% subsidiary of any other company which could claim group relief for any trading losses surrendered by the film rights company.

A company is a 75% subsidiary of another company if it would be considered to be so for the purposes of group relief.