Theleme's Degorce Facing £8M Tax Bill After Appeal Regarding Film Rights Denied

Sep 4 2015 | 6:53pm ET

U.K. hedge fund manager Patrick Degorce is facing an £8 million tax bill after an appeal he filed against a finding that he sheltered millions in taxes through film losses was denied.  

Degorce is CIO at Theleme Partners, a $2.5 billion London hedge fund he founded in 2009. He is well-known for co-founding The Children's Investment Fund with Chris Hohn.

The scheme involved investing in film productions in order to generate losses which were then used to offset income elsewhere. Degorce bought the rights to two films – Ben Stiller’s Tropic Thunder and Mike Myers’ Love Guru – from Goldcrest Pictures. He ostensibly bought the rights for £21.9 million, but ultimately only paid £4.8 million of his own money for them. Later, he sold the rights back to Goldcrest for a much lower amount, and booked the difference as a loss. 

HMRC said he then sold back the rights to Goldcrest for a hugely discounted rate, claiming the difference as a trading loss against other income. However, the U.K. taxing authority argued such losses were not related to actual trading and the losses were not eligible for sideways tax relief.

Degorce, for his part, argued that he was genuinely interested in investing in the film projects, as well as others, and sought expert advice from professionals such as HSBC on the transactions. However, during the process, he also admitted that without the tax benefits, they would likely not have been worth entering. 

The hedge fund manager is reportedly one of 12 investors in the Goldcrest scheme, all of which have appealed decisions against them by HMRC.

Editor's note: Amended on Sept 5. to clarify a mischaracterization of the tax losses and Theleme's AUM.


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