Factual and Procedural Background
The appellant, a French national residing and working in the United Kingdom as a hedge fund manager, entered into a complex film distribution scheme in the final days of the 2006/07 tax year. The scheme, promoted by a group of companies collectively referred to as Goldcrest, was designed to generate a substantial trading loss for tax relief purposes by acquiring rights in films and exploiting them through a series of transactions. The appellant subscribed to the scheme as a sole trader, with an initial payment followed by a loan covering the majority of the purchase price. The transactions were executed rapidly over a few days in April 2007 and involved multiple agreements with Goldcrest companies and a connection to Paramount group companies.
The appellant's claim for tax relief on trading losses was challenged by HMRC on the basis that the appellant was not carrying on a trade. The matter was referred to the First-tier Tribunal (FTT) under section 28ZA of the Taxes Management Act 1970, focusing on whether the appellant carried on a trade in the 2006/07 tax year and, if so, the amount of allowable losses. The FTT found against the appellant, concluding that the activity was not an adventure in the nature of trade.
The appellant appealed to the Upper Tribunal, which upheld the FTT's decision despite identifying an error in the FTT's approach relating to the consideration of the appellant’s activities before and after 2006/07. Permission to appeal to this court was granted by the Upper Tribunal. The appellant subsequently sought to amend grounds of appeal and rely on supplementary arguments, including those based on recent authoritative cases concerning the meaning of "trade" in tax law.
Legal Issues Presented
- Whether the appellant was carrying on a trade in film distribution and exploitation during the 2006/07 tax year.
- If the appellant was trading, whether the trade was conducted on a commercial basis and with a view to profit or a reasonable expectation of profit.
- Whether the profits or losses of the trade were computed in accordance with generally accepted accounting principles (UK GAAP).
- Whether the appellant’s expenditure on film rights was wholly and exclusively for the purposes of the trade.
- Procedural issue as to whether the appellant should be permitted to advance a new argument based on an identified error of law in the FTT’s approach and the evidence relating to activities before and after 2006/07.
Arguments of the Parties
Appellant's Arguments
- The appellant contends that the FTT erred in law by treating the 2006/07 transactions as a one-off and ignoring evidence of similar film-related activities before and after that year, which indicate a continuing trade.
- The appellant argues that the transactions, viewed in the broader context of his film-related activities from 2005 to 2009, constitute a trading adventure and not merely the acquisition of an income stream.
- The appellant submits that the Upper Tribunal wrongly exercised its discretion by not setting aside the FTT decision despite identifying an error of law in the FTT’s approach.
- Reliance is placed on recent Court of Appeal decisions in Eclipse and Samarkand, which clarify the principles for determining whether activities amount to a trade for tax purposes.
- The appellant seeks permission to amend grounds of appeal and rely on a supplementary skeleton argument to develop the new trade argument based on the error of approach identified by the Upper Tribunal in the FTT decision.
Respondent's Arguments (HMRC)
- HMRC maintains that the transactions in 2006/07 were pre-arranged, rapid, and designed solely to generate tax losses, not a genuine trade.
- HMRC argues that each transaction was a composite package resulting in the acquisition of a contingent income stream rather than trading in film rights.
- The lack of repetition within the 2006/07 tax year and the appellant’s own tax return indicating the trade began on 2 April 2007 support the view that no trade existed in that year.
- HMRC submits that the Upper Tribunal correctly exercised its discretion not to set aside the FTT decision, emphasizing the broad discretion conferred by section 12 of the Tribunals, Courts and Enforcement Act 2007.
- HMRC contends that the appellant’s subsequent transactions in 2007/08 were essentially repetitions of the same scheme and do not alter the character of the original transaction.
- HMRC disputes that the appellant’s film-related activities before and after 2006/07 establish a trade in that tax year.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Marson v Morton [1968] 1 WLR 1343 |
Provides a list of badges of trade to assist in determining whether an activity constitutes a trade. |
The court accepted the badges as common sense guidance but emphasized the need to consider the whole picture rather than isolated factors. |
| Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655 |
Clarifies that the purpose of expenditure, not the purpose of the transaction, is relevant to trading status; also warns against re-characterization to impose tax. |
The court rejected the appellant’s argument that lack of intention to sell the income stream negated trading, emphasizing the nature of the expenditure. |
| Ransom v Higgs [1974] 1 WLR 1594 |
Discusses the necessity of a customer in trading and the significance of intention to sell. |
The court found the FTT’s reliance on absence of intention to sell as a decisive factor was misplaced in the context of complex film rights transactions. |
| Eclipse Film Partners No. 35 LLP v Revenue and Customs Commissioners [2015] EWCA Civ 95 |
Reaffirms approach to determining trade by evaluating the whole picture and confirms the appellate court’s limited scope to overturn findings of fact. |
The court applied these principles to distinguish between investment and trading in film schemes, guiding the present court’s approach. |
| Samarkand Film Partnership No. 3 v Revenue and Customs Commissioners [2017] EWCA Civ 77 |
Confirms that the question of trade is an evaluative exercise considering all facts and legal principles; warns against isolating elements out of context. |
The court endorsed a multi-factorial evaluation and emphasized that the appellate court must respect factual inferences of the tribunal. |
| Brady v Group Lotus Car Companies Plc [1987] STC 635 |
Relates to the approach on appeals from tax tribunals and the exercise of discretion in setting aside decisions. |
Referenced in submissions regarding the discretion of the Upper Tribunal to set aside decisions when an error of law is found. |
| Revenue & Customs Commissioners v Grace [2009] EWCA Civ 1082 |
Addresses the approach to appeals and the burden of proof in tax appeals. |
Used to support the appellant’s argument concerning the burden of proof and materiality test in setting aside tribunal decisions. |
| J D (Congo) v Home Secretary [2012] EWCA Civ 327 |
Confirms the broad discretion of the Upper Tribunal when finding an error of law in a First-tier Tribunal decision. |
Supported the respondent’s submission that the Upper Tribunal has discretion whether to set aside decisions despite errors of law. |
| Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5 |
Emphasizes appellate courts’ caution in interfering with trial judges’ findings of fact and inferences. |
Applied to underline the limited scope for appellate intervention on factual findings in the present case. |
| Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377 |
Concerns the adequacy of tribunal reasoning and grounds for appellate interference. |
Referenced in submissions regarding the appellant’s complaint about the FTT’s explanation of its findings. |
| Lupton v F A & A B Ltd [1972] AC 634 |
Establishes that fiscal considerations can alter the character of a transaction such that it is no longer a trade. |
The tribunals applied this principle to conclude that the scheme was primarily designed for tax sheltering, denaturing any trade character. |
| Edwards v Bairstow [1956] AC 14 |
Sets the test for appellate courts challenging findings of fact as erroneous in law. |
Used to confirm that the tribunal’s inference that no trade existed could only be overturned if perverse or based on legal error. |
Court's Reasoning and Analysis
The court began by reviewing the statutory framework, emphasizing that the existence of a trade is a question of fact determined by evaluating the entire factual matrix against established legal principles. The court relied heavily on recent authoritative decisions in Eclipse and Samarkand, which require a holistic assessment rather than isolating individual elements.
The First-tier Tribunal’s approach was found to be generally sound in principle, correctly applying an objective test and considering badges of trade. The critical error identified was the FTT’s treatment of the 2006/07 transactions as a one-off, disregarding evidence of the appellant’s film-related activities before and after that year. The Upper Tribunal acknowledged this error but concluded it was immaterial to the outcome.
The court agreed with the Upper Tribunal’s view that the FTT was entitled to focus on the April 2007 transactions in isolation, given the absence of detailed evidence about other activities and the self-contained nature of the scheme transactions. The court noted that the appellant’s prior involvement in partnerships did not amount to trading on his own account, and the subsequent transactions were essentially repetitions of the same scheme, unlikely to affect the character of the initial transaction.
The court also rejected the appellant’s argument that the FTT erred in placing weight on the absence of an intention to sell the income stream, finding this to be a peripheral factor. The overarching conclusion of both tribunals was that the appellant’s activities amounted to the acquisition of a contingent income stream through a pre-arranged series of contracts, rather than carrying on a trade in film rights.
Regarding the procedural issue of admitting a new argument based on the identified error of law, the court permitted the appellant to advance this argument, finding no unfairness to the respondent and acknowledging that the argument was grounded in the evidence before the FTT. However, the court ultimately found no material error of law in the Upper Tribunal’s decision that would justify overturning the conclusion that no trade existed.
Holding and Implications
The court’s final decision is to DISMISS the appellant’s appeal.
The holding affirms the Upper Tribunal’s conclusion that the appellant was not carrying on a trade in the 2006/07 tax year, but rather engaged in a composite transaction resulting in the acquisition of a potential income stream for tax avoidance purposes. The decision confirms the application of the established multi-factorial approach to determining trade status and underscores the limited scope for appellate interference with factual findings absent material errors of law.
No new precedent was established. The direct effect is that the appellant’s claim for loss relief under the relevant tax provisions is disallowed for the 2006/07 tax year, and the other subsidiary issues do not arise.