A group of top Rothschild investment bankers are suing the Swiss banking giant UBS for losses of £1.25m they suffered from a "highly aggressive tax avoidance" plan that went wrong.
UBS and the financial adviser ProAct are being sued by Rothschild's deputy chairman, Anthony Alt; the head of UK global financial advisory, Robert Leitato; and joint global investment banking head, Nigel Higgins.
The wealthy bankers invested in an unregulated investment fund called Film Development Partnership IV LLP to claim its losses against their income.
The lawsuit alleges that UBS did not warn them of the risks of investing in the fund, which backed film financing, distribution and development.
The bankers were told the "highly aggressive tax avoidance mechanism" was "all but certain to produce, by reason of the tax relief which would result, a return in excess of the investment," the filing claimed.
Her Majesty's Revenue & Customs investigated and rejected the fund's tax return, which claimed partnership losses, preventing the bankers from including the losses on their personal tax returns, according to the claim filed at the High Court in London and reported by Bloomberg.
A Rothschild spokeswoman declined to comment because the case is a personal matter for the bankers. UBS said: "We are aware of the proceedings and we will vigorously defend ourselves." ProAct said no one was available to comment.
The bankers were told their risks were linked to "prospects of an investment return, rather than an entitlement to tax relief and also in relation to possible future legislative change regarding the regulation of film schemes," the law suit claimed. "They were not warned that there was a very high risk attached to the prospects of the proffered tax relief."
Investing in films was a favourite method for the rich to avoid tax after the Labour government introduced a tax relief in 1997 designed to boost the British film industry.
The measures generated a glut of low-quality films, many of which never made it to the cinema, made for the sole purpose of avoiding tax.
The rules were changed in 2005 when the Government closed the loophole. The Rothschild bankers' lawsuit, filed in February but made public this week, covers advice dating back to 2004.
The case highlights the schemes available to wealthy individuals to avoid paying tax on their personal income. As the Government enacts swingeing spending cuts, unions and other campaigners are calling for a clampdown on such avoidance as an alternative to put the public finances in order.
David Hillman, a spokesman for the Robin Hood Tax campaign, said: "This insight into the murky world of tax avoidance shows the energy some bankers expend on not paying their fair share. Robust financial sector taxes are essential if banks are to work for, rather than against, the interests of society."
Film Development Partnership IV was sponsored by Little Wing Films, the lawsuit said. Little Wing's website listed films including 9 Dead Gay Guys and said the business was set up in 2000 for the "development, funding, production and exploitation of UK film".
Little Wing was the subject of similar litigation by 75 bankers and businessmen, including Terra Firma Capital boss Guy Hands, against the accountants Baker Tilly. The case was settled in 2008.Reuse content