InPatrick Degorce v HMRC[2015] UKUT 447 (24 August 2015), the UT found that the taxpayer had not been trading so that the scheme he had implemented did not work.
Mr Degorce had implemented a tax avoidance scheme known as the ‘Goldcrest Film Scheme’. The scheme had involved the purchase and immediate assignment of intellectual property rights in two films. HMRC considered that the scheme had not given rise to the expected trading losses, as Mr Degorce’s activities had not amounted to trading.
The UT accepted the FTT’s finding that it was clear before Mr Degorce entered into the first of the transactions ‘that at the end of them, minutes later, he would be left only with the income stream. No other outcome was possible.’
Whether Mr Degorce had obtained advice or negotiated the transactions was irrelevant, as advice and negotiation do not transform the purchase of an asset (for instance, an income stream) into a trading activity. Indeed, they are not included in the well-known list of ‘badges of trade’ (Marson v Morton [1986] STC 463). Similarly, the fact that there was an element of speculation – as the amount of income Mr Degorce would receive was unknown – was not sufficient to make this a trading transaction.
Finally, the fact that other parties to the transactions were trading did not alter the fact that there were no trading transactions from Mr Degorce’s perspective.
Why it matters: Eleven other taxpayers had implemented the scheme and this was the lead case. In finding against the taxpayers, the UT noted that the case was distinguishable from Ensign Tankers v Stokes [1989] STC 705, in which the taxpayer had contributed to the financing of the production of the films as one of the members of a partnership. The case was, however, similar to Eclipse Film Partnersv RCC [2015] EWCA Civ 95, where the Court of Appeal had found that the taxpayers were not trading.
InPatrick Degorce v HMRC[2015] UKUT 447 (24 August 2015), the UT found that the taxpayer had not been trading so that the scheme he had implemented did not work.
Mr Degorce had implemented a tax avoidance scheme known as the ‘Goldcrest Film Scheme’. The scheme had involved the purchase and immediate assignment of intellectual property rights in two films. HMRC considered that the scheme had not given rise to the expected trading losses, as Mr Degorce’s activities had not amounted to trading.
The UT accepted the FTT’s finding that it was clear before Mr Degorce entered into the first of the transactions ‘that at the end of them, minutes later, he would be left only with the income stream. No other outcome was possible.’
Whether Mr Degorce had obtained advice or negotiated the transactions was irrelevant, as advice and negotiation do not transform the purchase of an asset (for instance, an income stream) into a trading activity. Indeed, they are not included in the well-known list of ‘badges of trade’ (Marson v Morton [1986] STC 463). Similarly, the fact that there was an element of speculation – as the amount of income Mr Degorce would receive was unknown – was not sufficient to make this a trading transaction.
Finally, the fact that other parties to the transactions were trading did not alter the fact that there were no trading transactions from Mr Degorce’s perspective.
Why it matters: Eleven other taxpayers had implemented the scheme and this was the lead case. In finding against the taxpayers, the UT noted that the case was distinguishable from Ensign Tankers v Stokes [1989] STC 705, in which the taxpayer had contributed to the financing of the production of the films as one of the members of a partnership. The case was, however, similar to Eclipse Film Partnersv RCC [2015] EWCA Civ 95, where the Court of Appeal had found that the taxpayers were not trading.
