Hedge fund star Patrick Degorce told to pay £8m for role in tax-avoidance scheme

One of the UK’s leading hedge fund managers must pay nearly £8m in tax after a judge upheld a ruling that Patrick Degorce had attempted to shelter millions in a controversial avoidance scheme.

Mr Degorce, co-founder of The Children’s Investment Fund along with Sir Chris Hohn, denied knowing that a film schemeoffered by Goldcrest Pictures was a tax-avoidance scheme and insisted the opportunity to buy the film rights to Star Trek VI was a “serious trading venture”.

Goldcrest is the company behind Oscar-winning films such as Chariots of Fire and Gandhi.

Mr Justice Robert Hildyard rejected Mr Degorce’s appeal against an earlier tribunal judgment that had ruled his primary concern was the tax-relief benefits of the scheme.

Mr Degorce denied this but said he understood it could be seen as such and had sought advice from HSBC bank, which had introduced the scheme to him, on the matter.

He insisted he was genuinely interested in investing in films and had sought independent advice from experts about doing so.

He acknowledged there had been pressure to act rapidly as he’d only had three days to benefit from it, and admitted that without the perceived tax benefit, it would not have been worth entering the scheme.

Mr Justice Hildyard said it was a “legitimate inference” that Mr Degorce’s main concern was tax relief and, as such, the identity of the films in which he was acquiring rights and the scale of financial returns he might have expected were of secondary importance.

The tribunal heard the rights to Star Trek were withdrawn and the hedge fund boss instead bought the rights to two feature films – Tropic Thunder, produced by Ben Stiller, and The Love Guru, written by Mike Myers – for an artificially inflated figure of £21.9m. But he only paid in £4.8m of his own money.

Mr Degorce claimed he then sold the rights back to Goldcrest Films for a fraction of the price he paid, saying the difference was a trading loss.

Mr Degorce was one of 12 users of the film scheme, all of whom have appealed against decisions made by HM Revenue and Customs (HMRC). Jolyon Maugham, QC, for Mr Degorce, said the hedge fund chief had been involved in months of discussions with HSBC about setting up a film business and had sought advice from “recognised industry experts” both before and after this deal took place. Later film rights were purchased separately to “broaden his portfolio and spread his risk while improving his prospects of making a positive return”. On one occasion he had refused to invest in a substitute film and had successfully demanded the return of his money.

Mr Justice Hildyard rejected Mr Maugham’s criticism of the tribunal findings.

HMRC, which had argued that Mr Degorce’s activities did not amount to trading, said it welcomed the decision.