This is just stupid:
Analysis of company filings suggests the documentary made a £70,000 loss. Without the HMRC cash rebates, it appears the UK business would not have been able to fully repay its offshore investors – the largest of which was Elliot and Goldsmith’s BVI company, E&G Productions, which had provided the £600,000 loan.
Goldsmith said a group of cricket enthusiasts had financed the film, chipping in £5,000 to £100,000 each. It is not clear if these contributions – mostly made by UK residents – were then converted into the £600,000 offshore loan from a BVI company, nor how much came from Goldsmith and Elliot.
One former HMRC tax inspector, who reviewed the structure for the Guardian, said: “In practice, I cannot see that the use of the BVI company by two UK residents could be anything other than tax motivated.”
Prem Sikka, emeritus professor at Essex Business School and a Labour peer, added: “With tax havens, there are two advantages: opacity and tax avoidance. There’s nothing else there.”
Elliot and Goldsmith added: “A Caribbean company was used at the outset because we anticipated securing investment to make Fire in Babylon largely from investors outside the UK and specifically in that part of the world. As it turned out, more UK-based investors than we expected backed the film, although as you have spotted, some of the film’s investors were indeed in the Caribbean.”
However, Fire in Babylon appears to have only attracted two Caribbean-based investors, and an offshore finance expert challenged the idea that a BVI company would have encouraged others.
“It is no more attractive for Caribbean investors to invest in a BVI company than a Netherlands company, or a Luxembourg company,” he said. “Perhaps even the reverse, as generally there is little substance to litigate. If anything, BVI is less attractive to a Caribbean investor.”
If you start with a UK company and have foreign investors then you’re exposing those foreign investors to both UK and foreign taxation. If you start with a tax-free company then each investor can pay the correct amount of tax, at the one level, on any income. The problem being that income from investments and companies is taxed differently in different countries. Therefore to ensure that each person can pay the correct – and only the correct – amount for their own home tax jurisdiction you make the first company itself tax free.