Harry Potter and the riddle of RBS’s tax bill

It’s the kind of magic worthy of a graduate of Hogwarts School of Witchcraft and Wizardry — Royal Bank of Scotland Group, owner of Ulster Bank, conjured up at least £1bn (€1.29bn) in tax breaks by investing in controversial financing deals for Harry Potter films and a host of other blockbuster titles that involved no risk to the bank.
Harry Potter and the riddle of RBS’s tax bill

The transactions, which RBS has never disclosed, are revealed in hundreds of public filings by at least 25 companies set up by the bank to take part in movie ‘sale and leaseback’ arrangements a decade ago.

Those companies are still active and earning income for RBS, though they’ve been shifted to a division that houses unwanted assets for the remaining lifespan of the 15- to 20-year leases.

The filings show that RBS owns rights to the third and fourth Harry Potter films, Troy, Batman Begins, Charlie and the Chocolate Factory, and at least 20 other movies, though the film titles are not always listed in the available paperwork.

From 1998 until around 2007, RBS took advantage of the tax breaks without paying any production costs, or risking losses if the movies bombed. At least 10 of the transactions have been probed by the UK tax collection agency. Between 2003 and 2006, RBS avoided or delayed paying about £1bn in tax using the deals, according to calculations based historic tax rates.

“These are artificial transactions done solely for tax avoidance reasons,” said Jolyon Maugham, a tax lawyer.

That does not mean they were illegal or even aggressive, said Mr Maugham. An RBS spokeswoman said the leases complied with rules in force at the time, and that when the law changed in 2007, the bank exited the business. It worked with authorities to ensure it paid appropriate taxes, she said. In 1997, the UK government introduced generous tax credits for companies involved in the booming film industry. Among the investments that emerged to take advantage of the rules were sale and leaseback deals.

Lawmakers later found the deals, while legal, benefited those seeking to avoid taxes more than they helped British filmmakers.

In theory, the schemes simply deferred taxes because the later lease payments were taxable, but investors liked them because they allowed them to put their capital to use immediately. And for RBS, they’ve been particularly beneficial: The bank has not paid corporate taxes in recent years because it has not had any profits since 2008 — when it got a £45bn-government bailout after coming close to collapse.

RBS typically bought a completed film, then leased it back to the studio for distribution to cinemas, on DVD, on television, and online.

“HMRC treats all taxpayers the same: When HMRC believes a taxpayer has avoided tax, we will demand they pay the full amount due, which can include interest and penalties,” the agency said in a statement.

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