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Directors Clapperboard with Tax Abuses written on it

Leading up to the International Colloquium entitled “Tax Evasion, Corruption and the Distortion of Justice,” which will be held on Zoom on the 21st of June 2023, we are releasing a synopsis of the article “'The Producers' of Tax Abuse: The Corrupting Effects of Tax Laws and Tax Reliefs in the U.K. Film Industry,” recently published in the Duke University Law School’s Journal of Law and Contemporary Problems. Join for free on Zoom what promises to be a fascinating discussion using the following link (free registration):

The event is aimed at disseminating the publications included in the Special Issue “Tax Evasion, Corruption and the Distortion of Justice,” which has been edited by Prof. Diane Ring, Dr. Costantino Grasso, and Dr. Lorenzo Pasculli, and has been recently published in the Duke University Law School’s Journal of Law and Contemporary Problems. The articles included in the Special Issue will be discussed with top-level experts and relevant stakeholders to establish a fruitful knowledge-exchange process.

“The Producers' of Tax Abuse” has been authored by Dr. Lorenzo Pasculli, who serves as a Principal Research Fellow and Deputy Director of the Dawes Centre for Future Crime at the Department of Security and Crime Science at UCL, and Dr. Stuart MacLennan, who is a is an Associate Professor of Law at Coventry University.

During the International Colloquium, the article will be discussed by Dr. Leopoldo Parada, who is an Associate Professor in Tax Law at the University of Leeds, and Dr. Pietro Maria Sabella, who is an Adjunct Assistant Professor in Criminal Law at Luiss University.

The article begins discussing the film "The Producers" by Mel Brooks, which tells the story of Max Bialystock, a dishonest theater producer who discovers that failure can be more lucrative than success. This highlights the vulnerability of the theater industry to fraudulent activities. The authors then draw a parallel to the UK's film tax relief system, which unintentionally incentivizes tax abuse. They argue that tax evasion and avoidance have become pervasive due to loopholes in tax legislation and the interplay of norms and institutions.

The paper explains that tax abuse extends beyond the film industry, with even celebrities getting involved in schemes for tax savings. The cumulative impact of these schemes has led to an estimated annual loss of £5 billion in tax revenue for the UK. To address this issue, the authors propose a proactive approach that involves applying concepts from environmental criminology and situational crime prevention. By understanding the elements that enable tax abuse and reconfiguring the legal system, policymakers can create a more preventive framework.

The authors analyze judicial decisions and systemic abuses in the context of tax evasion and avoidance and argue that, although the study is focused on the UK film industry, it may serve as a foundation for understanding the corrupting effects of the legal system irrespective of a specific jurisdiction. The insights gained from this research can guide future studies and assist policymakers worldwide in addressing tax abuse more effectively.


The article then discusses the methodology used by the authors, which involves qualitative comparative analysis of six case studies using the grounded theory methodology. They rely on document-based sources such as legislation, court decisions, policy documents, and news media. The selected cases cover both tax avoidance and tax evasion scenarios, providing ample evidence for analysis.

The authors acknowledge some limitations of the study, including its focus on the UK jurisdiction and specific tax abuse schemes. However, they aim to generate theories and concepts that can be applied to other jurisdictions and sectors. They also note that further empirical research using primary sources like surveys or interviews would yield more detailed findings.

The Law as a Criminogenic Environment

The article proposes a theoretical framework for examining the criminogenic environment created by the law. It states three main premises: crime results from the interplay between motivation and opportunity, situations can encourage crime by providing opportunities or strengthening criminal motivations, and the law can unintentionally enable criminal opportunities or strengthen criminal motivations. The study focuses on the causes of systemic tax abuse in the UK and its correlation with the legal system.

Motivations for economic crime are influenced by environmental conditions that make certain goals and activities desirable. Immediate environments can trigger or intensify criminal motivations, known as "situational precipitators" of crime. Legal provisions, especially in the context of tax offenses, can act as such precipitators. Introducing new taxes or tax reliefs can provoke attempts to circumvent or exploit them, resulting in abusive or dishonest behaviors.

Enforcement plays a crucial role in influencing criminal motivations. Failure to detect and punish early violations may strengthen the motivation to re-offend, while learning from previous offenders can contribute to the systematization of misconduct. Opportunities for tax abuse depend on environmental and situational conditions, including the absence of effective guardians and vulnerable targets. The legal environment, such as tax reliefs and disparities in tax regimes, can enable tax abuse.

The article highlights rationalization patterns, which neutralize moral and cognitive dissonances associated with criminal behavior. Legal situations that legitimize or excuse criminal behaviors can reinforce these rationalizations. Perceptions of unfairness and inefficiency in the tax system, as well as loopholes and ambiguous provisions, can contribute to rationalizing harmful behaviors that exploit legal gray areas.

Tax Abuse in the U.K. Film Industry

Tax reliefs for film productions are a government strategy to support the industry. These reliefs aim to address the unique challenges faced by film production, such as high initial costs and limited income during production, followed by a surge in profitability upon release. However, conventional capital allowances are insufficient to address these patterns.

In the past, provisions in the Finance Acts allowed deductions for film production costs. However, they unintentionally created opportunities for tax avoidance. For instance, film producers formed partnerships to claim relief against earnings from previous productions, resulting in lower tax rates. To address these issues, the Finance Act 2006 replaced these reliefs with a more comprehensive system under the Corporation Tax Act 2009 (CTA).

Under the current regime, film production companies operating in the UK can benefit from a cash rebate of 25% on core expenditures. Additionally, sector-specific relief for film production companies exists alongside other available reliefs, such as the Enterprise Investment Scheme (EIS). The EIS allows individual investors to deduct share purchases from qualifying companies. Furthermore, the Finance Act 2021 introduced a "super-deduction" for business investments, allowing write-downs at 130% of their value.

The UK's capital allowances system offers different levels of write-down depending on the nature of the asset, aiming to encourage investment in specific sectors. However, these rules can be exploited for unintended tax advantages, leading to questionable interpretations or outright deceit.

The article highlights three cases of tax avoidance: Eclipse 35, Ingenious, and Icebreaker LLP.

  1. In the Eclipse 35 case, a partnership acquired the rights to films and sub-licensed them back to another subsidiary, using interest payments and converting investment income into trading income for tax deductions. However, the courts ruled against these deductions.

  2. Ingenious involved the use of an Enterprise Investment Scheme (EIS) in producing blockbuster films. Limited liability partnerships were utilized, and investors could make post-tax profits without recouping losses. The court decisions concluded that the partnerships were not trading partnerships, and deductions for losses were disallowed.

  3. Icebreaker LLP aimed to manufacture trading losses for individual partners. The partnership made agreements for film licensing and distribution, seeking loss relief for these payments. However, the courts disallowed most of the payments and determined that the partners lacked a commercial basis for their membership in the partnership. An anti-avoidance rule was applied in the Icebreaker case to prevent sideways relief and capital gains relief for losses arising from tax avoidance arrangements. It was found that the main purpose of one partner was to obtain tax relief, and the investment would not have been made without the intended tax advantage.

The article then discusses three cases of tax evasion: Animation92, Little Wings Films, and Zodiac and Aquarius.

  1. In Animation92, individuals fraudulently obtained VAT repayments and film tax relief by creating fake film production entities and using deceptive measures. They were convicted of cheating the public revenue.

  2. Little Wings Films involved individuals who marketed a film development opportunity, falsifying invoices and returns to inflate losses for tax repayments. They established offshore companies to conceal their fraud and were sentenced for cheating the public revenue.

  3. Zodiac and Aquarius involved the use of LLPs to attract investments and claim sideways loss relief. False or inflated invoices and records were used to claim significant financial losses. When the law changed, they developed new partnerships and false records to maintain compliance. Those involved were sentenced for conspiracy to cheat the public revenue.

The Juridical Enablers for Tax Abuse in the U.K. Legal System

The authors introduce the concept of "juridical enablers" for tax abuse and explore their presence in the UK legal system. They identify general and special enablers that create or exacerbate conditions conducive to tax abuse. General enablers include the introduction of new taxes, inadequate prohibition of tax avoidance arrangements, and ineffective enforcement of tax laws. Special enablers are embedded in legal frameworks governing specific arrangements, such as tax reliefs or business structures. Understanding the interactions between general and special enablers is crucial for analyzing tax abuse. The combined effects of various components of the legal framework enable tax abuse, and these effects arise from the malleability of the law and its capacity to be creatively assembled into unintended structures.

General Juridical Enablers

The authors of the article discuss the issue of tax abuse in the UK, focusing on three general juridical enablers: the introduction of new taxes and changes to tax regimes, the inadequate prohibition of tax avoidance arrangements, and the ineffective enforcement of tax laws. They argue that these factors contribute to tax abuse and erode compliance.

The introduction of new taxes or changes to tax regimes can lead to tax abuse as individuals seek ways to minimize their tax burden. While taxes alone do not explain why some individuals choose to violate the law, lawmakers should consider the potential implications of perceived unfairness or excessive burden when introducing new taxes. Changes in tax regimes can disrupt the status quo and create pressure on taxpayers, potentially leading to resistance, defiance, and evasion.

The inadequate prohibition of tax avoidance arrangements in the UK has contributed to the growth of the tax avoidance industry. The lack of clear prohibitions and ambiguous language used by courts enabled individuals to exploit the system and engage in tax abuse. Attempts to address this issue through statutory anti-abuse rules had limited deterrent effects and unintended consequences. The complex and subjective interpretation of these rules allowed for self-interested interpretations.

The authors highlight that anti-avoidance rules alone are insufficient to combat tax fraud and deception. Long-established rules concerning connected losses and duality of purpose played a significant role in breaking these schemes. The wording of the law may be important to professional advisers, but others involved in the schemes may rationalize their actions based on a general awareness of the grey area between legality and illegality.

The ineffective enforcement of tax laws and inadequate sanctions imposed by the courts contribute to tax abuse. Limited resources and a focus on revenue gains often result in selective enforcement, prioritizing financial gains over prosecuting the real culprits. The complexity of judicial decisions exacerbates legal uncertainty and creates opportunities for further abuse. The misrepresentation of outcomes and manipulation of narratives by perpetrators further worsen the problem.

Special Juridical Enablers

The authors also discuss two "special" juridical enablers: the availability of tax reliefs or concessions and the availability of legal instruments that may be used for tax abuse purposes. Tax reliefs provide opportunities for individuals to save on taxes without resorting to illegal means. The absence of clear anti-abuse norms and the legal validity of these reliefs rationalize their exploitation. The regulation of tax relief is interconnected with regulations in industry sectors, and uncertainty in these regulations can make tax reliefs susceptible to abuse.

Legal instruments, such as complex contractual arrangements and legal structures provided by company and contract law, are used for tax abuse purposes. These structures create legal relationships that fulfill the requirements of tax reliefs or support and conceal deceptive practices. The complexity of these arrangements poses a challenge for investigation and enforcement.


The authors propose possible solutions to address tax abuse, emphasizing the need for a comprehensive and preventive strategy. They suggest measures such as promoting awareness and understanding of legal enablers, investing in research, enhancing training and guidance for judges, and incorporating risk assessment mechanisms into legislative processes. They also call for further research to validate their findings and explore the role of tax professionals in shaping the legal environment.


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