Report on international review of audio-visual state

Report on international review of audio-visual state
Sec 481 FILM RELIEF REVIEW
REVIEW OF INTERNATIONAL
AUDIOVISUAL STATE SUPPORTS
FINAL REPORT
18TH OCTOBER 2012
Contents
1
Context for Review of Film Tax Relief ............................................ 5
2
Terms of Reference: ................................................................. 6
3
Approach Adopted: ................................................................... 7
4
5
6
7
8
3.1
Review Methodology: ....................................................................................... 7
3.2
Scope of Review: .............................................................................................. 7
3.3
Industry Interviews: ........................................................................................... 7
Layout of Report: ..................................................................... 8
4.1
Overall Layout: ................................................................................................. 8
4.2
Individual Country Reviews: .............................................................................. 8
International Review - Key Findings .............................................. 9
5.1
Types of Relief .................................................................................................. 9
5.2
Headline Levels of Relief to Production Companies:....................................... 11
5.3
Targeted Relief for Labour Element of Film Production ................................... 13
5.4
Caps and Restrictions..................................................................................... 13
5.5
Monetisation & Early Monetisation of Tax Relief ............................................. 15
Ireland ................................................................................. 17
6.1
Overview of Industry and Support ................................................................... 17
6.2
Specific Film Industry Support ........................................................................ 18
6.3
Scope of Activity Eligible for Relief .................................................................. 19
6.4
Operation of Reliefs ........................................................................................ 21
6.5
Relief Caps or Restrictions ............................................................................. 22
6.6
Summary of Key Aspects of Relief .................................................................. 22
United Kingdom ...................................................................... 23
7.1
Overview of Industry and Support ................................................................... 23
7.2
Specific Film Industry Support ........................................................................ 24
7.3
Operation of Reliefs ........................................................................................ 25
7.4
Scope of Activity Eligible for Relief .................................................................. 27
7.5
Relief Caps or Restrictions ............................................................................. 29
7.6
Planned ‘Creative Industry’ Support from 2013 ............................................... 30
7.7
Summary of Key Aspects of Relief .................................................................. 33
Australia ............................................................................... 34
8.1
Overview of Industry and Support ................................................................... 34
8.2
Specific Film Industry Support ........................................................................ 34
8.3
Scope of Activity Eligible for Relief .................................................................. 36
8.4
Operation of Reliefs ........................................................................................ 38
Page 2 of 100
9
8.5
Relief Caps or Restrictions ............................................................................. 40
8.6
Summary of Key Aspects of Relief .................................................................. 41
Belgium ................................................................................ 42
9.1
Overview of Industry and Support ................................................................... 42
9.2
Specific Film Industry Support ........................................................................ 44
9.3
Scope of Activity Eligible for Relief .................................................................. 44
9.4
Operation of Reliefs ........................................................................................ 45
9.5
Relief Caps or Restrictions ............................................................................. 46
9.6
Summary of Key Aspects of Relief .................................................................. 47
10 Canada ................................................................................. 48
10.1
Overview of Industry and Support ................................................................... 48
10.2
Specific Film Industry Support ........................................................................ 51
10.3
Scope of Activity Eligible for Relief .................................................................. 53
10.4
Operation of Reliefs ........................................................................................ 55
10.5
Relief Caps or Restrictions ............................................................................. 57
10.6
Summary of Key Aspects of Relief .................................................................. 59
11 The Czech Republic ................................................................. 60
11.1
Overview of Industry and Support ................................................................... 60
11.2
Specific Film Industry Support ........................................................................ 61
11.3
Scope of Activity Eligible for Relief .................................................................. 61
11.4
Operation of Reliefs ........................................................................................ 62
11.5
Relief Caps or Restrictions ............................................................................. 63
11.6
Summary of Key Aspects of Relief .................................................................. 63
12 France .................................................................................. 64
12.1
Overview of Industry and Support ................................................................... 64
12.2
Specific Film Industry Support ........................................................................ 67
12.3
Scope of Activity Eligible for Relief .................................................................. 68
12.4
Operation of Relief .......................................................................................... 70
12.5
Relief Caps & Restrictions .............................................................................. 71
12.6
Summary of Key Aspects of Relief .................................................................. 71
13 Luxembourg ........................................................................... 72
13.1
Overview of Film Industry and Support ........................................................... 72
13.2
Specific Film Industry Support ........................................................................ 73
13.3
Scope of Activity Eligible for Relief .................................................................. 74
13.4
Operation of Relief .......................................................................................... 76
13.5
Relief Caps & Restrictions .............................................................................. 77
13.6
Summary of Key Aspects of Relief .................................................................. 77
Page 3 of 100
14 New Zealand .......................................................................... 78
14.1
Overview of Industry and Support ................................................................... 78
14.2
Specific Film Industry Support ........................................................................ 79
14.3
Scope of Activity Eligible for Relief .................................................................. 81
14.4
Relief Caps or Restrictions ............................................................................. 82
14.5
Summary of Key Aspects of Relief .................................................................. 83
15 USA - State of Connecticut ......................................................... 84
15.1
Overview of Film Industry and Support ........................................................... 84
15.2
Specific Relief Industry Support ...................................................................... 85
15.3
Operation of Reliefs ........................................................................................ 87
15.4
Scope of Activity Eligible for Relief .................................................................. 89
15.5
Relief Caps or Restrictions ............................................................................. 90
15.6
Summary of Key Aspects of Relief .................................................................. 91
16 USA - State of Louisiana ............................................................ 92
16.1
Overview of Film Industry and Support ........................................................... 92
16.2
Tax Relief for the Film Industry ....................................................................... 93
16.3
Scope of Activity Eligible for Relief .................................................................. 95
16.4
Operation of Reliefs ........................................................................................ 96
16.5
Relief Caps or Restrictions ............................................................................. 98
16.6
Summary of Key Aspects of Relief .................................................................. 99
APPENDIX 1 Consultations as part of the International review ................ 100
Page 4 of 100
1
Context for Review of Film Tax Relief
In May 2012, the Minister for Finance, Michael Noonan T.D., initiated a public consultation as part of
an economic impact assessment of the operation, status and future development of the Section 481 tax
relief otherwise known as “film relief”. The consultation paper was published on the Department of
Finance website1, with the consultation due to run from 28 May to 31 July 2012.
The purpose of the impact assessment and the consultation was to enable the Department to better
understand the benefits that may accrue to the exchequer in terms of additional tax yield as well as
consequences for investors, the audiovisual industry, and the wider economy arising from potential
changes to the relief.
The terms of reference for impact assessment, which will involve the evaluation of the tax expenditure
scheme in broad socio-economic and fiscal terms, and the determination of the extent to which the
scheme justifies its continuation, are as follows:
Table 1: Terms of Reference for Economic Impact Assessment of Sec 481

Examination of the costs and benefits of the existing scheme, taking into account
displacement/deadweight impacts, and the interplay between this and other tax
reliefs

The identification of value for money of the scheme to the economy overall

Examination of the international competitiveness context within which the sector
operates

Recommendations, where and if necessary, for changes that could be made to
enhance / maximise the value for money to the tax payer and sustainable job
creation and taking digital production and technological advances into account
1
See www.finance.gov.ie and www.taxpolicy.gov.ie
Page 5 of 100
2
Terms of Reference:
As part of the Department’s wider data gathering exercise and as a means to better understand the
operation of the scheme and the international efficiency and competitiveness of Ireland’s offering, the
Department tendered for an outside organisation to conduct a review of production incentives
internationally.
On foot of a competitive tender, the Department appointed BDO to conduct a review of the tax and
non-tax supports to the audio-visual sector in a selection of competitor jurisdictions.
The following are the Terms of Reference for the review
to conduct a comparative review of film and television production incentives internationally,
focussed on the main incentives and legislative positions in a number of Ireland’s main
competitors (numbering approximately 5-10)
to include in this review tax and non-tax (i.e. direct subsidy) incentives in respect of Film and
TV production
in respect of tax incentives noted, to identify whether the incentive is targeted at investors, as
is the case in Ireland, or the production companies, and the period of time over which
remuneration takes place
in respect of tax incentives noted, to identify the exact tax instrument used
to prepare a report to the Department setting out the key findings from the international
review
Page 6 of 100
3
3.1
Approach Adopted:
Review Methodology:
Our review of the international support mechanisms was conducted in two district stages:
Stage One
Detailed analysis of publically available information on Film Support
Programmes in each country reviewed
Primary research via interviews with representatives of the main
national/state Film Support Agencies in each country reviewed
(10 interviews conducted)
Stage Two
Preparation of reviews of each individual country based on our analysis
of industry collated and additional insights from the interviews
conducted.
3.2
Scope of Review:
The Terms of Reference of the review called for an examination of the support provided to Film and
TV productions only. Initial examination of the reliefs provided indicated that in many countries reliefs
are now being provided to broader range of production types than just Film and TV productions.
For this reason, a scope extension was agreed with the Department to include examination and review
of the reliefs provided to animation and digital media/gaming in each country/state.
3.3
Industry Interviews:
In support of the detailed review and analysis of publically available information, we conducted a
series of interviews with film support agencies from each of the comparator countries.
These reviews have been used to further develop our understanding of the practical application of
reliefs and supports in each country and to identify both the aspects which resonate and appeal to
producers and those which are considered problematic.
Page 7 of 100
4
4.1
Layout of Report:
Overall Layout:
The substantive body of the report is broken into two main sections:
Key Findings:
In this section we look at some of the key findings that we have taken from the
analysis and comparison of the programmes of reliefs in comparable
countries/states.
Country Reviews
In this section we examine on a country by country basis the reliefs and
supports that are provided in each of the countries selected for review.
4.2
Individual Country Reviews:
To facilitate the comparison process we have tried where possible to apply a consistent structure to
each of the individual country review sections. However, in some cases either information was not
available or the nature of the relief provided (grants versus reliefs) required that we depart from this
consistent approach.
Table 2 Structure of Country Specific Chapters
Overview of
This section provides a simple overview of the size and scale of the Film &
Industry & Support
TV production industry in each country/state and an introduction to the
types of support that are provided to the industry
Specific Film
This section details the provisions of the main Film Support Programmes
Industry Support
available in each country or state
Scope of Activity
This section provides details of the type of productions supported
Supported
(Film/TV/Documentary/Animation etc.), the stage of production supported
(pre-production, production, post-production) and the type of expenditure
which is treated as eligible for relief
Operation of
This sections looks at how the relief works in practice, the timing of relief
Reliefs:
and how the producer benefits from the relief
Caps & Restrictions
This section examines the extent to which reliefs are either capped (either
by production or by relief programme) and the extent of any restrictions
on the relief
Key Aspects of
This section provides a short summary of some of the key characteristics of
Relief
the relief and key figures in relation to the relief
Page 8 of 100
5
International Review - Key Findings
In this section we look at some of the key findings that we have taken from the analysis and
comparison of the programmes of reliefs in comparable states and countries.
Providing recommendations on reform or changes to Sec 481 was not part of the Terms of Reference
for this project and these findings are not, and should not be seen as recommendations or guidance in
terms of areas for possible changes to Sec 481.
While this report looked at comparing the nature of reliefs and supports (eligibility, levels, restrictions
etc.) offered in different countries we note from our review and analysis, that the effective level of
relief/support that is offered to support film/TV productions is usually not the only or indeed the
primary rationale for locating an internationally mobile production in a particular jurisdiction.
Rather, the programme of relief/support that is available is just one of a basket of criteria (which
include cost base, availability of crew and facilities, location specific requirements of the scrip etc.)
that are considered when deciding on a location for part or all of a production.
In this sense the competiveness of the Irish system of tax support can only be fully assessed in the
context of a broader overall analysis of the competitiveness of each of the key measures in the basket
of criteria that together inform the decision as to the location of a production.
5.1
Types of Relief
Though individual to each country or state in which it is offered, the type of film production support
which is used to attract international and globally mobile productions can be broadly classified into
three main categories as follows:
Reliefs provided to those who invest in film - Investor relief
Reliefs provided directly to the production company – Producer relief
Support in the form of Grants – which have no tax based qualities - Grants
Table 3: Main Film Relief/Support by types
Producer Credit
Investor Credit
Grants
Belgium
UK
France
Czech Republic
Ireland
Australia
Louisiana
New Zealand
Canada
Luxembourg*
Connecticut
* The stated intention of the Government is to move Luxembourg to a grant based support
Page 9 of 100
Investor led reliefs
This relief allows the investors (individuals and corporates) to provide funds in a tax efficient manner
to production companies, with producers having upfront access to their production funds and in many
cases, investors having upfront access to their tax credits. This is the main form of film production
support in Ireland and Belgium but it also features in small part in other countries such as France
(Sofica’s) and the UK (EIS funds).
In Ireland the tax relief under Sec 481 is available to both individuals and corporations who provide
funds for investment in film production. However, the participation from corporations is negligible due
to the limited tax benefit arising from the low corporate tax rate.
In Belgium the investor relief is only available to corporations. The maximum investment is much
higher in Belgium at €500,000 than the €50,000 for individuals in Ireland but the actual amount of
investment in an eligible production in Belgium is capped at a maximum of 50% of the cost of the
production (80% in Ireland).
The main benefit of this form of film relief to producers is that it provides up front access to funds in
comparison to tax credits which usually involve waiting until practical completion and until a corporate
tax return is made. On the flipside, investor based supports dilute the % of the tax support provided
by the state which ultimately flows to the producer and are dependent on the timely availability of
sufficient investors who are willing and able to invest in a given production.
Direct Producer Relief
Under these initiatives, relief is provided mainly to the production/co-production company. There are
different mechanisms used by countries in granting relief such as directly in the form of tax
deductions and payable tax credits and indirectly by allowing secondary markets for the sale and/or
transfer of tax credits.
Direct relief is given whereby eligible producers receive relief in the form of a direct tax deduction
from the taxable profits of the company. In those cases companies are allowed to deduct a % of
investment in productions against taxable income.
However, where productions are co-produced in different countries the use of Special Purpose Vehicles
(‘SPVs’) is common and they are set up to maximise the benefits of prevailing tax incentives. In many
cases these SPVs will not be profit making entities and will not have taxable profits available for
offset.
In those cases countries such as Canada, UK and the State of Louisiana allow relief to be granted in the
form of a payable tax credit whereby any unused credits is repaid to the company in the form of a
rebate. The benefits of these is that they allow the producers to reclaim the credit on a timely basis
(on submission of annual corporate tax returns) and that they may be in the form of a rebate.
Page 10 of 100
Table 4: Relief System by Jurisdiction
UK
Connecticut
Tax Deduction

Repayable Credit

Transferable Credit


Louisiana
Australia
Canada
France
Lux.











In other jurisdictions such as the State of Louisiana and in Luxembourg there are also secondary
markets where tax credits can be sold to investors, who can use them to reduce their own tax
liabilities. This benefits producers as it gives them timely access to their credits.
Grants
Another method whereby Government’s provide funding support to the film production sector is by
providing financial assistance in the form of grants/rebates. These are the main forms of Government
led film support initiatives in New Zealand and the Czech Republic and in 2012 Luxembourg have also
indicated that they too will be moving to a grant based support system from its current tax based
system.
The key benefit of a grant system is that the relief is given directly to the producer. It also provides
programme certainty and limits State exposure if caps and limitations are imposed to control the level
of State grant aid allowable per production.
On the other hand the process for selection of productions for grant aid can be subjective. There may
be a high level of competition with the more experienced filmmakers often winning out. The grant
application process may also be time consuming with waiting times for approval often very prolonged.
In addition Grant aid is usually given when production has been completed.
5.2
Headline Levels of Relief to Production Companies:
Accurately comparing the level of support or relief provided to production companies is more of an art
than a science, given the number of variables involved and the different rules in each country/state
which dictate what is eligible expenditure.
In particular, the commonly quoted headline values for tax relief (XX% of expenditure as relief)
available to producers are in many instances a considerable distance from the net effective support
realised by the producers when they seek to sell or seek repayment on their tax credits.
In most states which provide tax relief directly to the producer, the only way in which the headline
rate of support can be realised is if the production company at the point of filing tax returns has
sufficient profits to allow the full tax deduction (generated from their production activities) to be
absorbed. This is the case in the UK, Luxembourg, Louisiana and Connecticut.
Page 11 of 100
The nature of Film and TV production is such however that in many cases the productions are
channelled through special purpose vehicle companies which will never generate profits sufficient to
allow the production companies take full advantage of the tax deductions that their production
activities have generated.
In a report which was produced in 2010 in Connecticut it was reported than only 9 of 80 production
companies which had availed of the tax credit in Connecticut up to that point had applied them
against state taxes. This pattern is evident in most countries which provide tax credits directly to the
production companies.
Where producers cannot avail of the full value of their tax deductions, in most countries they are given
the flexibility to take their relief as a tax credit which is either repayable or transferable. While in this
way the producers benefit from the reliefs which would otherwise be lost, in many cases this will
significantly impact on and reduce the Net benefit to the producers from the relief.
Table 5: Headline v's Realisable Rate of Support
Ireland
UK <£20m
UK>£20m
Louisiana
41%
25%
20%
30%
Investor Relief
Producer Relief
Producer Relief
Producer Relief
28%
NA
NA
NA
NA
21.2%
16.96%
30%
NA
20%***
12.8%
25.5%****
NA
NA
NA
24%
Headline Rate of
Relief % *
Type of Relief
Immediate Benefit to
Producer
Benefit from Tax
Deduction**
Benefit from
Repayable Credit
Benefit for sale to
Market/Broker
* These are the figures normally referred to in discussion of film relief – in the case of Ireland this is the relief provided to the
Investor on the higher rate of tax
** Assuming production company have sufficient profits to absorb full deduction
*** UK Repayable Credit based on Enhanceable expenditure*Rate of enhancement*Payable credit rate (25/20%)
**** Assuming Buy-back in State of Louisiana at 85c/dollar
Page 12 of 100
5.3
Targeted Relief for Labour Element of Film Production
Film and TV production inevitably involves a wide range of specialist skills and specialist staff. A key
focus for Governments in supporting film production is on ensuring that the relief provided generates
the maximum possible additional direct and indirect demand for local labour. In a number of the
countries/states which we have examined, increasing the % of local labour used across all productions
is seen as a key measure of the success of these incentives.
Despite the common emphasis on local job creation and support, the degree to which the relief
systems are tailored to supporting local labour over all other considerations varies widely. At one end
of the spectrum is Canada where both the Federal and Regional audio-visual production incentive
systems are based primarily on the value of local labour employed on the production.
The Canadian system offers generous tax credits for both domestic and foreign producers of
Canadian and non-Canadian content programming that employ Canadians and chose Canada as a
location or production office. The tax credits are available at both Federal and Provincial level and can
be combined in some cases thus maximising the relief available to the producer.
In other countries/states an additional benefit is provided over and above the base support to support
the employment on local labour on productions. This is the case in the State of Louisiana which
provides an extra 5% relief (Labour Tax Credit) for expenditure on local labour.
In the European countries we have examined, there isn’t an equivalent specific focus on labour; rather
it is treated as one of the classes of expenditure which is recognised as qualifying expenditure under
the tax provisions. This may be due in part to the requirement to treat local and EU labour in a
consistent manner under European legislation
Table 6: Examples of labour based reliefs
Country
Description of Allowable expenditure
Canada
Very narrowly focussed on labour
Labour is the main qualifying expenditure type at Federal/State level
Louisiana
Main 30% credit allows for labour as eligible expense
Separate credit provides additional 5% for local labour expenditure
Ireland
Local Labour not separately provided for in tax code
Local (and EU) labour is part of qualifying expenditure
UK
Local Labour not separately provided for in tax code
Local (and EU) labour is part of qualifying expenditure
Non-UK labour costs may also be covered by the use and consume rule
5.4
Caps and Restrictions
While of the most of the focus is usually on the Headline rate of support provided by a film relief
scheme, of equal importance is the structure of the support from the relief and in particular the
Page 13 of 100
operation of caps or restrictions. Setting these caps and restrictions is a major part of the process of
marketing and tailoring the relief to different segments of the production market – large studio
productions, versus medium domestic productions versus small budget productions. Generally speaking
No caps – can be used to facilitate large studio productions
Smaller caps – can be used to favour local productions, location shoots, co-production
Minimum Spend Thresholds – can be used to either support or exclude smaller productions
Tiered /Sliding Scale of benefits – can be used to add further support for smaller productions
(<£20m in UK) or to provide additional support for extra-large productions (NZ)
Table 7: Partial Summary of Film Relief Caps
Cap on Relief
Cap per
% of Costs
Annually €/$
Production €/$
allowable
Ireland
No cap
€50m
80%
UK
No cap
No cap
80%2
Australia
-
Producer offset
No cap
No cap
Min spend
-
Location offset
No cap
No cap
conditions for
-
PDV offset
No cap
No cap
these reliefs
No cap
No cap
50%
Belgium
-
PSTC
No cap
No cap
Min Spend3
-
CPTC
No cap
No cap
60%
€16m
80%
Min Spend4
France
No cap
€4m
Min Spend5
Luxembourg
No cap6
€2.5m
30%
Canada
Czech Republic
New Zealand
-
Large Screen Prod. Grant
-
Post Digital and Visual
No cap
No cap
Min Spend7
Effects Grant
No cap
No cap
Threshold8
No cap
No cap
Conditions9
State of Connecticut
State of Louisiana
2
-
Investor credit
No cap
No cap
Min spend10
-
Labour credit
No cap
No cap
Min spend11
Enhanceable Expenditure is based on the lower of UK Core Expenditure or 80% of Core Expenditure
3
The production must have a minimum spend of CDN$1m for feature film, CDN$200,000 for a one hour TV episode, CDN$100,000 for a 30 minute TV episode
4
US$480,000 for each TV episode, US$720,000) for theatrical features and TV films and US$150,000) for theatrical documentaries
5
The project must spend a minimum of €1M on eligible expenditure in France
6
The relief is currently being restructured – Proposal to be replace it with a direct funding model with a program budget of €20m
7
Film – minimum of $15m or $30m where grants are being bundled after fulfilling certain criteria. TV – Individual episodes minimum of $500k per commercial hour
8
QNZPE must be between $3m and $15m and must be spent on th$20 million to star talent which is subject to Connecticut income tax
8
Relief is only grated in respect of productions with expenditure of >$300k e specified post digital and visual effects work
9
The production company must conduct 50% of principal photography days in-state or spend 50% of a film's post-production costs in the state. Expenditure on payroll cannot
exceed $20 million to star talent which is subject to Connecticut income tax
10
Relief is only grated in respect of productions with expenditure of >$300k
11
Resident wages are restricted to $1M for the added 5% Labour Tax Credit. Above the line costs - lower of $3M or 12% of
Louisiana production expenditure
Page 14 of 100
5.5
Monetisation & Early Monetisation of Tax Relief
As a consequence of the multitude of different approaches pursued in different countries to providing
relief to producers, the means and timeframe under which producers can realise the benefits of their
production support are equally varied.
Typically you find that at its simplest the schemes operate thus
Investor based relief – majority of benefits accrues to producer upfront
Producer based relief – benefits accrue to producer after completion of a majority or the
entirety of the production
Grants – varied benefit begins to accrues to producer after qualifying spend threshold is met
(NZ) or on submissions of audited accounts showing expenditure (Cz)
Irrespective of how the support scheme is intended to operate, producers in all countries invariably
look for early access to the benefit of their credits and reliefs to facilitate cash-flowing their
production, and in most countries such access is possible subject to certain conditions.
The most common ways in which this is done are detailed below - but in many cases this will not give
them access to funds at the start of principal photography and will involve and extra cost
State Administer Interim Claims – Threshold Expenditure:
Facilitate producer in realising benefit of supports once a threshold qualifying expenditure is realised.
In most cases the checks and balances here come from the requirement that the qualifying
expenditure must be certified/audited by an approved 3rd party.
State Administer Interim Claims – Producer Year-End:
Facilitate producer whose production runs over multiple accounting periods by allowing them in partrealise the benefit of supports at year-end once accounts are submitted but in advance of the
completion of the project.
Lending on Strength of Credits - State Administered Loan Scheme
In Australia, where a producer has an international distribution agreement, the Government through
the Australian Export Finance & Insurance Corporation will provide a loan against the projected value
of their rebate. Targeted at smaller productions, this loan is made on the basis of a Provisional
Certificate of expenditure and cannot exceed 90 of estimated final rebate.
Lending on Strength of Credits – Private Banks
A recent report prepared for the European Commission under their MEDIA programme, looked at the
participation across Europe of Banks in funding film production and in particular their role in lending
Page 15 of 100
against Tax Credits12. In most markets this report found that such Tax Credit based lending is relatively
common and is provided by a number (a small number) of banks.
While this and other reports in non-EU countries have noted the use of bank based lending on the back
of Tax Credits, there is an important point which is made across countries in this latest report, that in
the EU in particular, such lending is regarded by banks as both complex and limited in scale and hence
the report notes a reducing appetite for participation in this market.
Secondary Markets & Transferable Credits
While facilitating early realisation of tax deductions is beneficial to the producers, creating/allowing a
market where producers can trade these credits rather than wait to avail of the deductions, can
significantly improve value/access to fund for producers who would otherwise be faced with using or
loosing tax deductions.
In many states across the US and also in Luxembourg, secondary markets in tax credits underpin the
whole support system as many production companies with the credits do not have the profits that
would allow them make use of the credits.
While supportive of the tax credit system, secondary markets create their own issues and risks which
need to be managed. In particular such markets
may have to be restricted (limits on the % of all corporate income that can sheltered using
bought film tax credits - Ct)
may create policy dilemmas (where tax credits are used in large part to shelter income tax for
a very wealthy minority - Louisiana)
may suffer as a consequence of their very nature (collapsing corporate profits leads to
collapsing corporate demand for film tax credits – Luxembourg)
Refundable Credits / Tax Credit Repayments
Where Tax Credits are Repayable or Refundable, the producer instead of taking a deduction against
taxable induction realises the benefit of the support by seeking repayment/a refund on the value of
their tax credits.
The timing and value provided to producers varies substantially and the production may not even be
complete when the refund on the tax credit is being sought. In the case of the State of Louisiana, the
state positions their buy-back’ of tax credits as a way for producers to realise the benefit of their
funds more quickly than any other way but in doing so only offers producers 85c/dollar as a buy-price.
12
Study on the Role of Banks in the European Film Industry 2009
http://ec.europa.eu/culture/media/programme/docs/overview/evaluation/studies/sme/filmbanking.pdf
Page 16 of 100
6
6.1
Ireland
Overview of Industry and Support
The Irish film industry, which is largely based in and around the Dublin and Wicklow surrounds, has
performed well in recent years.
There has been strong performance in the production of large scale television series being filmed in
Ireland such as Borgias, The Tudors and Vikings. In addition lower budget domestic productions, such
as The Guard, have also performed strongly.
The Irish film industry is now considered to be extremely important for Ireland with economic analysis
showing a production value of €326.8 million for 2011 (2010: €390.2m) million) with Irish spending for
the sector considered to be €156.0m for 2011. Numbers employed in the industry, reported to be 1,606
whole time equivalents in 201113.
The primary tax based support for the Irish film and television Industry is through Section 481 relief.
This relief allows the investor (individuals or corporates) to provide funds in a tax efficient manner to
production companies with both investors and producers having upfront access to their tax relief and
production funds respectively.
In order to qualify for Section 481 funding, the production should a feature film, or a television drama,
animation production or creative documentary.
In the table below the budgeted Irish production expenditure is broadly categorised across animation,
documentary, feature film, and television drama. Of this total expenditure, Section 481 funding
totalled €113m for 201114.
Table 8: Total Production Expenditure in Sec 481 Supported Productions
2011
2010
2009
Animation
€80.4m
€67.3m
€49.9m
Documentary
€7.3m
€3.4m
€1.8m
Feature Film
€122.6m
€90.4m
€73.1m
Television Drama
€77.1m
€185.9m
€72.0m
Total
€287.4m
€347.0m
€196.8m
Source: Revenue Commissioners, S481 Statistics 2012
13
Review of Section 481 Film Relief on behalf of IBEC’s Audiovisual Federation, 2012
14
Revenue Commissioners, Section 481 Statistics
Page 17 of 100
Non-tax support for the film industry comes from a number of sources. The Broadcasting Authority of
Ireland (BAI) through the Sound and Vision II programme offers grants and supports to production
companies. The programme is designed to increase public access to television and sound broadcasting
and to promote Irish culture and heritage. The programme allows for the funding of grants to support
new television and sound broadcasting.
The Irish Film Board (IFB)/ Bord Scannán na hÉireann (BSE) was reconstituted in 1993 and is the
national development agency for the Irish film industry. It supports and promotes the Irish film industry
and the use of Ireland as a location for international production.
The IFB has a capital budget for funding grants of approximately €14.7m for 2012, primarily
distributing its funding under the key areas of film industry production - development, production and
distribution. Within each of these primary areas of funding there are more specialised areas of
supports available.
Other supports are also available from bodies such as the Arts Council of Ireland (State funding
€63.1m in 201215) although not all funding related to film production, Film Base, Northern Ireland
Screen and Media Desk Ireland (approximately €9m of funding over nine years).
Ireland is also a member of the Council of Europe's production support fund, EURIMAGES. The fund
supports production of feature films, documentaries and animated films that are intended for
cinematographic exhibition and are co-productions between at least two EU member states. Most
recently, “Niko, A Family Affair16” received EURIMAGES funding.
6.2
Specific Film Industry Support
The Irish Industry Support Programme
As previously stated the industry is supported primarily through Section 481 of the Taxes Consolidation
Act 1997 (generally known as Section 481 Relief), which is a Government based tax relief introduced to
promote the Irish Film Industry.
Section 481 is also supported by smaller incentive and funding programmes operated by the Broadcast
Authority of Ireland, and The Irish Film Board.
Section 481 can also be used in conjunction with other reliefs and grants within Ireland and also with
companies in other jurisdictions through co-production under the relevant EU or International coproduction agreements (particularly popular for UK projects).
15
The Arts Council Ireland website
16
Irish Film Board website
Page 18 of 100
Development of Film Industry Support in Ireland
Section 481 was originally established in 1984 under the Business Expansion Scheme, and was then
effectively replaced by Section 35 of the Finance Act 1987. Section 35 detailed the relative limits on
relevant investment in the scheme – at that time £100,000 (€127,000).
Section 35 was updated by subsequent Finance Acts, and in the Finance Act 1993, a provision was
introduced allowing individual investors to participate in the scheme with maximum investment set at
£25,000 (€31,750). In addition, provisions were introduced which allowed for certification of qualifying
films and relevant allowable expenditure.
In the Finance Act 1996, Section 35 was further updated to cap the amount of eligible expenditure by
production companies to ensure no film could receive more than £7.5m (€9.53m) through the scheme.
The Act also allowed for corporate investment in the scheme to be carried forward if required and
reduced the relevant tax deduction to 80% of the total investment. The maximum amount that an
investment company could invest was limited to £6m (€7.62m) with investment in a single qualified
company capped at £2m (€2.54m).
The maximum amount of investment by a company was increased in the Finance Act 1997 to £8m
(€10.16m) with £3m (€3.81m) allowed to be invested in a single qualified company. Section 481 of the
Taxes Consolidation Act 1997 effectively consolidated all changes of the changes made to Section 35.
In subsequent years the definition of qualifying companies was broadened and the cap on fund levels
was increased to £8.25m (€10.48m).
In Finance Act 2004, the role of certification was assigned to the Revenue Commissioners, and
increased the cap on levels to €15m. Finance Act 2004 amended the relief such that costs should be
related to certain employments and goods and services, namely Irish or EU, which was further defined
in the 2005 Finance Act. The cap on funding that could be raised was further increased to €35m by
Finance Act 2005. The percentage of the costs was increased to 80% - previously a sliding scale.
Most recently the Irish Government has increased the ceiling on qualified expenditure for any one film
from €35m to €50m, with individuals now being able to invest up to €50,000 per annum with tax relief
now increased to 100% of the amount invested.
Currently individuals and corporates investors can invest a maximum of €50,000 and €10,160,000
respectively per annum.
6.3
Scope of Activity Eligible for Relief
Cultural Test:
In order to qualify for Section 481, a production must pass cultural tests administered by the
Department of Arts, Sport and Tourism. This is in common with other European Countries and other
State supports for the film industry.
Page 19 of 100
The cultural tests are quite broadly defined and aim to assess whether a production will be an
effective stimulus to film making in Ireland and the general Irish economy as a whole. Also assessed is
the degree to which and the way in which it will portray Ireland, its culture and the extent to which it
will support the development of skills in the Irish workforce.
Qualifying Company:
A qualifying company for the purposes of the Section 481 is an Irish incorporated and resident
company, or a company which is carrying on a trade in the State through a branch or agency. The
company must exist solely for the production and distribution of a single qualifying film 17.
In general terms the qualifying production company is a Special Purpose Vehicle (SPV). This ensures
that the funding is clearly targeted for the production of a specific film so that the investor will be
aware of how the investment is to be utilised.
A certificate must be obtained by the company from the Revenue Commissioners and should be
obtained in the early stages of production, and no later than when 25% of total production costs have
been incurred.
Qualifying Production
Included as Qualifying Production:
The production of feature films, creative documentaries, television drama and animation are all
considered eligible for Section 481 funding.
Excluded as Qualifying Production:
In contrast to the UK (planned), France and Canada, video game production is effectively excluded
from any relief under Section 481.
Qualifying Eligible Spend
Included as Eligible Spend
Section 481 allows for relief on qualifying eligible spend which in general terms, allows expenditure on
Irish and European labour /(EU crew who come to Ireland to shoot) costs and goods, services and
facilities that are produced or provided within Ireland.
Excluded as Eligible Spend
In contrast with a number of other major film production centres, Section 481 effectively disallows
expenditure on labour from non EU countries such as the United States. In practice this means that the
costs associated with the main ‘above the line costs, such as lead actors, producers, writers and
directors may not be considered eligible expenditure in certain cases.
17
Film Relief IT57, Revenue Commissioners
Page 20 of 100
As an investor led scheme which requires that investor funds are matched to production costs, Section
481 identifies projected expenses at the early stages of the production and mandates that amount
raised under Section 481 should be invested and made available to the production company from the
outset i.e. before commencement of principal photography / first model movement, as the case may
be, or where this is not possible, at the latest before 25% of the total production budget has been
incurred. In certain cases, productions may be extended or costs may overrun.
Under Section 481, in contrast to a Tax Credit / Deduction based system, it is difficult to include these
additional costs in eligible expenditure. This has previously caused difficulties where productions were
extended or there were unforeseen cost overruns.
6.4
Operation of Reliefs
General Conditions
There are a number of key conditions governing any investment in Section 481 companies, including
the qualification of relevant films, companies, and investors. In order to claim Section 481 film relief
the following key milestones require completion:
A Special Purpose Vehicle SPV must be established by the qualifying companies, and a Revenue
Commissioners tax certificate must be obtained by the SPV prior to any fundraising.
An application for a certificate under Section 481 should be submitted to the Revenue
Commissioners at least 21 days prior to the earlier of:
(i)
Commencement of the raising of relevant investments, or
(ii)
Commencement of the principal photography, the first animation drawings or the first
model movement, as the case may be.
Producer Participation
To be eligible for Section 481, the production company must provide the Revenue Commissioners with
the relevant agreements between production companies, letters of intent in relation to other financing
and any details of the relative flows of funds between the relevant parties. The Revenue
Commissioners will also require details around any relevant completion bonds and agreements.
Investor Participation
Section 481 allows for both corporate and individual investors to avail of tax incentives to invest in a
Qualifying Company.
Individual investors can invest up to €50,000 under the scheme in any year of assessment with
Corporate investors can invest up to €10,160,000 in any 12 month period with a cap of
€3,810,000 in any one film, (any excesses only to be invested in productions with a budget of
€5,080,000 or less). Companies can claim 80% relief on their investment.
Qualified production companies can raise up to 80% of the total production cost, on an upfront
basis, up to a budget limit of €50m through Section 481.
Page 21 of 100
6.5
Relief Caps or Restrictions
Relief Caps:
There is no capping on the level of industry-wide tax relief which can be provided in a given
year under Section 481
A cap on qualifying expenditure for a single productions is set at €50m
The total value of Section 481 funds raised is capped at 80% of the total cost of production
Restrictions with the relief
An application for Section 481 cannot be made after 25% of production budget has been
incurred
Budget overruns cannot qualify as eligible expenditure
A considerable amount of ‘above the line costs’ may not considered to be qualifying
expenditure
Individual investors can invest no more than €50,000 per year
6.6
Summary of Key Aspects of Relief
Key Characteristics of Section 481 Relief
The relief is based on relief for the investor in the qualifying film rather than the producer
Both individuals and corporates can avail of the relief, however given the relatively low
corporate tax rates, the relief is almost entirely availed of by individual taxpayers
The relief provides upfront funds to the producer – as opposed to a tax credit claimed post
production
The relief requires that the budget is locked in at the earliest stages of production and has
little scope for flexibility
The relief is applicable to film, television, animation and documentaries
The Headline Numbers
Cost of relief in 2011
€46.9m18
Number of Films Supported 2011
5719
Value of supported expenditure 2011
€113.4m20
Value of Tax Relief to producer
28% of qualifying expenditure
18
Review of Section 481 Film Relief on behalf of IBEC’s Audiovisual Federation
19
Revenue Commissioners, Section 481 Statistics
20
Review of Section 481 Film Relief on behalf of IBEC’s Audiovisual Federation
Page 22 of 100
7
7.1
United Kingdom
Overview of Industry and Support
The UK has a long established and well developed film industry which the British Film Institute has
estimated generated film production activity in the UK of over £1.26Bn in 2011 21. Of this over £1Bn
came in the form of new funds invested in the UK economy by ‘inward investment films’.
In 2011 there were 5,000 film production companies, 2,200 post-production companies, 420 film
distributors and 210 exhibitors in the UK 22. In addition there were over 100 production studios of all
sizes and four of the largest VFX companies (Framestore, MPC, Double Negative and Cinesite) 23.
Each year the British Film Institute prepares a statistical report on the UK Film industry which provides
a detailed picture of the industry and its development over the previous year. In the most recent
report for the full year 2011 some of the headline figures included those in relation to total film
production numbers and the quantum of support provided to the Film Industry.
Table 9: UK Production Numbers and Source 2011-201224
2010
2011
Co-productions
32
42
UK Productions
282
200
Inward Investment
29
32
343
274
Table 10: UK Production Spend by Source 2011-201225
2010
2011
Total
Co-productions
£974.9m
£1,012.3m
UK Productions
£187.3m
£187.7m
Inward Investment
£68.7m
£59m
£1,230.9
£1,258.9
Total
21
BFI Statistical Yearbook 2012
22
BFI Statistical Yearbook 2012
23
Next Gen. Transforming the UK into the world's leading talent hub for the video games and visual effects industries, NESTA,
24
BFI Statistical Yearbook 2012 – Chp17, Sec17.2
25
BFI Statistical Yearbook 2012 – Chp17, Sec17.2
Page 23 of 100
Table 11: UK Government Support for Film Production 2011-201226
2010
Film Tax Relief
2011
£95m
£200m
£38.4m
£48.7m
£60m
£42m
Other
£72.6m
£67.1m
Total
£266m
£357.8
Dept Culture Media & Sport grant-in-aid
to UK Film Council
National Lottery Distribution Fund
7.2
Specific Film Industry Support
Film Partnerships Relief (1997)
Since 1997 the UK Government has supported the UK film industry via tax reliefs (income and capital
gains) and other direct financial supports from the Film Council and/or British Film Institute (BFI).
Prior to the introduction of the current Film Tax Relief, targeted tax relief was provided to the film
industry via relief for individuals investing in Film Partnerships.
Tax relief provided through investment in Film Partnership proved to be a popular relief for certain UK
taxpayers with large income tax obligations due to the nature of the relief that was provided.
Over a number of years various efforts were made to amend the relief. As the expiry date for the relief
came about a decision was made to consult with the industry about the appropriate form of a
completely new scheme of support.
Film Production Companies and Film Tax Relief 2007:
Since 2007 Film Tax Relief (FTR) has been available for Film Production Companies (FPC’s). The
introduction of FTR marked a significant departure from the previous basis of tax relief for film
investment as it is not available to individuals (alone or in partnerships), investors, financial
institutions or those whose involvement in film making was confined to providing or arranging finance.
At the time of its introduction in 2007 the stated aim of HMRC was to substantially improve on the
operation and effect of the relief by:
Minimising the risk of abuse of the scheme of relief
Ensuring money went direct to film-makers
Increasing the percentage relief available, the budget caps for films and the maximum reliefs
allowed, and
Broadening the definition of eligible costs -including production expenditure outside
26
BFI Statistical Yearbook 2012 – Chp17, Sec17.2
Page 24 of 100
While the FTR changed fundamentally the nature of the tax based support provided to the film
industry in the UK, what remained constant was the way in which the relief was conditioned to ensure
that TV production, animation and the gaming industries were not capable of qualifying for the relief.
7.3
Operation of Reliefs
Additional Deduction or Payable Tax Credit
The FTR is explicitly crafted as a repayable tax credit rather than a rebate or an upfront investment.
Where a FPC is eligible for FTR, they can claim their relief in two main ways:
•
as an additional deduction in computing their taxable profits, or
•
where that additional deduction results in a tax adjusted loss, they can realise the value of the
relief by surrendering the tax adjusted loss for a payable tax credit
Additional Deduction
The Additional Deduction is calculated in the following way
Additional Deduction = Enhanceable expenditure x Enhanceable Rate
Enhanceable Expenditure is defined as the lesser of core UK expenditure or 80% of the total core
expenditure
The Enhanceable Rate is dependent of the size of the film’s budget:
Limited-budget films
(<£20m)
100%
Other films
(>£20M)
80%
The effect of the additional deduction is to decrease the amount of corporation tax which would
otherwise be payable, or create greater losses which are then available to be surrendered for the
payable credit.
Payable Tax Credit:
The amount which the FPC can receive, payable as a credit, is calculated in the following way
Payable Tax Credit = Surrenderable Loss surrendered x Payable Credit Rate
The Surrenderable Loss is defined as the lesser of;
the amount the company’s ‘available loss’ for the accounting period (which includes trading
loss and any additional deduction), and
the enhanceable expenditure for that period (the lesser of core UK expenditure or 80% of the
total core expenditure).
The Payable Credit Rate is dependent on the size of the film’s budget:
Limited-budget films
(<£20m)
25%
Other films
(>£20M)
20%
In some instances the surrenderable loss on a film can be greater than the straight additional
deduction that would be available as the basis for this includes both the value of the additional
deduction and the value of any trading loss.
Page 25 of 100
Differing Reliefs for Differing Production Types:
Based on the size of the production and how the relief is availed of, the effective range in net value of
the Film Tax Relief is between [12.8%] and [21.2%] of UK Core Expenditure
Table 12: Net Benefit of Deductions and Payable Credits (assuming UK Corp Tax rate of 26.5%)
Notes
Low Budget (<£20m)
Additional
Deduction:
FPC has sufficient
profit to absorb full
value of additional
deduction
High Budget (>£20m)
Enhanceable expenditure = 80% of
Enhanceable expenditure = 80% of total
total expenditure
expenditure
Rate of enhancement = 100%
Rate of enhancement = 80%
UK Corporation Tax Rate = 26.5%
UK Corporation Tax Rate = 26.5%
Value of FTR:
= 80% x 100% x 26.5%
Value of FTR:
= 21.2%
Payable Credit:
FPC has no taxable
profits (but no loss)
and claims
maximum amount
of Payable Credit
= 80% x 80% x 26.5%
= 16.96%
Enhanceable expenditure = 80% of
Enhanceable expenditure = 80% of total
total expenditure
expenditure
Rate of enhancement = 100%
Rate of enhancement = 80%
Payable credit rate = 25%
Payable credit rate = 20%
Value of FTR:
= 80% x 100% x 25%
Value of FTR:
= 20%
= 80% x 80% x 20%
= 12.8
* The above is example is based on a HRMC example which has been updated for consistency and to reflect the
new corporation tax rates 27
** It should be noted that as per the Notes, the above assumes no loss is made before the adjustment for
enhanceable expenditure. An operational loss within the FPC may impact on the percentage value of the FTR.
Timing of Payment of Relief:
In the normal course of events, a FPC will make its claim for FTR as part of the filing of the relevant
corporation tax return having completed the production and after receiving the final certification from
the Secretary of State confirming the ‘British Film’ status of their production.
According to HMRC, 96% of claims for refundable credits made since the introduction of the relief were
paid within six months of the submission of the claim.
Early Monetisation of Reliefs:
While the Film Tax Relief is explicitly positioned as either a deduction or payable credit which by its
nature is payable on completion of the production, in some cases producers require or would rather
have earlier access to part of the value of their tax credits.
In the UK, as in other countries with similar reliefs, accessing part of the value of the reliefs prior to
completion is possible.
The HRMC have noted that in approximately 50% of productions an interim claim is made – with 96% of
such interim claims also having been paid within six months. 28
27
http://www.hmrc.gov.uk/manuals/fpcmanual/FPC55030.htm
Page 26 of 100
In the UK market there also exist a number of banks, financial intermediaries and funds who will lend
against the value of the tax credit receivable. The parties involved in providing such facilities are
understood to include Barclays, Coutts, Bank Leumi and more niche providers such as Creativity Capital
and Aramid Capital Partners.
7.4
Scope of Activity Eligible for Relief
Qualifying as a Film Production Company (FPC)
To qualify as a FPC, a company must be involved in specific aspects of the film production:
It must be responsible for the pre-production, principal photography, post production and
delivery of the film on completion (it is not required to be responsible for every aspect of
these activities and it is not required to have responsibility for the development, marketing
and distribution of the film)
It must be actively engaged in production planning and decision-making during the preproduction , principal photography and post production stages of the film
It must directly negotiate, contract and pay for rights, goods and services relating to the film
(the FPC does not need to be the only party involved in these activities)
Qualifying Films
While a FPC may be involved in making many films, only costs associated with those qualifying films
which meet the specific qualifying criteria are eligible for relief. These criteria require that the film is:
a British film (generally evidenced by satisfying the culture test)
that it is intended for theatrical release – generally requires a significant proportion (greater
than 5%) of the earnings from the film should be obtained from theatrical release
one on which at least 25% of core expenditure (see below) is incurred on goods or services “used
and consumed” in the United Kingdom
UK Core Expenditure
Both the additional deduction and the refundable credit are calculated on the basis of UK core
expenditure –Core expenditure is that expenditure on pre-production, principal photography and
post-production up to a maximum of 80% of the total core expenditure by the FPC.
UK Expenditure: In respect of core expenditure it is then necessary to identify whether the
expenditure takes place in the UK (UK Expenditure) or elsewhere.
The test for UK Expenditure is whether the expenditure is on goods and services which are ‘used
and consumed’ in the UK. This moves the focus from the location of the supplier of the
goods/services to the location of consumption/use of the good/services 29
28
Summary of Tax Credits 2006-2007 to 2010-2011
29
http://www.hmrc.gov.uk/manuals/fpcmanual/FPC50050.htm
Page 27 of 100
This is of particular relevance to above the line costs and more so to the costs of lead actors. In
the UK, costs associated with such actors can qualify as UK Expenditure where the actor is being
paid primarily for their acting performance during UK based principal photography.
Films which receive support in 2011
While the Film Tax Relief is clearly available to productions with budgets of all sizes, the simple
overview of production numbers do not tell the full story of the industry structure and how it is
supported by Film Tax Relief.
The table below indicates that the UK’s “used and consumed” rule which allows for a significant
proportion of above the line costs to fall within UK Core Expenditure makes the UK an attractive
location for large budget film production.
While over 70% of all productions were from UK domestic productions, they accounted for only 15%
of the production spend in the UK.
In 2011, of 200 domestic feature films which commenced principal photography in the UK, 124 had
budgets which did not exceed £0.5m
In 2011, 18 films with budgets of greater than £30m were made in the UK. Taken together these
films account for over 78% of total production spend, but all bar three of these films were inward
investment productions30
In 2011, US Studio Films (where US studios were involved in the production of the film) accounted
for over 80% of the total production spend in the UK (£1,002.6m) thought they only represented 8%
(20 films) of the total number of films produced. 31
30
BFI Statistical Yearbook 2012
31
BFI – Film Production in the UK – Full Year 2011 Report
Page 28 of 100
Table 13: UK Production Spend by Source 2011-201232
Production Spend*
%
Inward Investment
Production Numbers
%
£1,012.3m
80.4%
42
15.3%
UK Productions
£187.7m
14.9%
200
73.0%
Co-productions
£59m
4.7%
32
11.7%
Total
£1,258.9
274
* Spend on principal photography commenced in 2011
Table 14: Value of Film Tax Relief Provided33
Total Film Tax Relief provided
7.5
2010
2011
£95m
£200m
Relief Caps or Restrictions
Caps:
There is no capping on the level of tax relief which can be provided in a given year. The total value
of relief provided is a function of the value of the core expenditure incurred on qualifying
productions and the means used (deduction/refundable credit) to avail of the relief.
Furthermore, there is no explicit cap on the value of the reliefs that will be provided to a single
production - In the most recent BFI survey over 70% of the reliefs went to a small number of large
productions.
Main Restrictions as regards relief:
Only qualifying Film Production Companies are eligible for the relief
Only certified British Films are eligible
To be eligible for relief, at least 25% of core expenditure on film must be on goods and services
used and consumed in the UK
Costs which do not qualify as ‘UK core expenditure’ cannot be relieved
The maximum value of a repayable credit is restricted to a percentage of core UK expenditure
(between 20% and 12.8%).
Differing reliefs for indigenous/international productions
While UK originated productions qualify for assistance from the BFI and others, from a taxation
perspective there is no explicit distinction between the level of reliefs offered to projects originating
outside the UK and those offered to domestically generated projects.
32
BFI Statistical Yearbook 2012 – Chp17, Sec17.2
33
BFI Statistical Yearbook 2012
Page 29 of 100
The key determinant of the size and the value of the relief is the size of the UK core expenditure and
the manner in which the relief is availed of (additional deduction or payable credit).
In 2011, US Studio Films (where US studios were involved in the production of the film) accounted for
over 80% of the total production spend in the UK (£1,002.6m) thought they only represented 8% (20
films) of the total number of films produced.
In practice this means that the vast majority of the larger productions with production budgets greater
than £20m (which attract lower additional deductions and refundable tax credit levels) are productions
originating from outside the UK primarily from the major US Studios.
7.6
Planned ‘Creative Industry’ Support from 2013
Background:
The perceived inequity of specific provision for the film industry, and the reality of similar reliefs for
TV/animation/gaming being provided to companies in these sectors in other countries, gave rise to a
broad-based lobbying effort from the creative industries in the run-up to the 2012 Budget.
The UK Government has outlined its commitment to provide world class support to the creative
industries and has announced that from April 2013, animation, high-end TV and video gaming will
benefit from a new system of tax reliefs.
The new reliefs for these ‘creative industries’ is to be closely modelled (in operation and as regards
the level of reliefs provided) on the existing support schemes for the film industry. However they are
to be distinct and separately tailored to the requirements of each of the creative industries.
The primary policy aims of the new reliefs were described as having:
A combined aim of promoting production of cultural products while also encouraging investment in
the UK,
A wider policy context of supporting growth in a way that is fiscally sustainable, and
The aim of delivering real additional investment without unnecessarily distorting behaviour or
adding undue complexity to the tax system.
In introducing these reliefs, the UK government explicitly recognised the competition that UK based
businesses in these industries faced from locations with reliefs targeting these sectors and
acknowledged the risk that without targeted support, these industries would lose valuable productions
to other countries.
Public Consultation:
Subsequent to the 2012 Budget announcements and in preparation for the introduction of the new
scheme of relief in April 2013, the UK Government announced the launch of a consultation process
which began in June 2012. This process was intended to canvass the views on the design of these
reliefs from companies, individuals and groups which are representative of the industry.
Page 30 of 100
For each of the three named creative industries, a separate working group was also established with
Government and industry representation to work on the details of the relevant sector specific reliefs.
It is intended that these groups would report back in time for draft legislation to be published in
Autumn 2012.
In coming up with these detailed designs, a number of principles have been established which the
sector specific reliefs will need to observe:
Effectiveness - The reliefs must be effective at delivering cultural and economic benefits.
Affordability - The changes must be affordable, in line with the Government’s objective for long
term sustainability.
Simple and straightforward to administer - The new reliefs should not result in unnecessary
administrative burdens.
Sustainable and not open to abuse - These reliefs should be designed to be effective for the longer
term and should not create substantial additional avoidance opportunities.
Compliance with EU State aid rules - the new reliefs will need to gain State aid approval from the
European Commission.
High-End TV:
The UK television and radio industry employs over 113,120 people across 7,960 organisations, exported
£2.18 billion of services in 2010 and is home to the world’s oldest broadcaster.
UK TV has become an export orientated business within the wider UK economy with annual
international sales of UK TV related DVD’s amounting to over £110m, and UK sales of TV programmes
to the US amounting to over £500m in 201034.
Within the high –end TV working group established as part of the consultation, a number of areas of
focus have been identified which need to be addressed in order to allow the TV relief to be agreed.
Whilst some of these areas are common to the other creative industries, others are specific to high-end
TV productions.
Agreeing what are the direct costs of production and what should be excluded (e.g. costs of
finance and marketing)
Agreeing what should be included under ‘core expenditure’
Defining high-end television in a simple, consistent and usable definition which clearly excludes
activity that would take place in absence of any relief.
Agree how co-productions are going to be treated
Agreeing a monetary threshold for high-end TV based production costs per programme hour
(pitched at £1 million per hour)
Agreeing production types which are high end (drama, comedy etc.) and those which are not
(current affairs, discussion, variety, panel shows etc.)
34
UK Television Exports Survey 2010, PACT
Page 31 of 100
Animation:
In their submission prior to the 2012 Budget, Animation UK provided considerable detail on the nature,
extent and value of the animation sector to the UK. Key figures included
The fact that there are 600 companies directly involved in animation in the UK
The industry employs over 4,700 people and has annual revenue of over £300m
Over 70% of animation activity is taking place outside London
Within the Animation working group which has been established as part of the consultation, a number
of areas of focus have been identified - again some of these areas are common to the other creative
industries, others are specific to animation.
Defining animation – There is a need for a definition that is workable in legislation, recognised in
the animation industry and which is in line with State Aid guidelines.
o
Working Definition - ‘A sequence of images in 2 or 3 dimensions created by recording still
images or objects, one frame at a time with incremental changes in position, form or
appearance between frames to create the impression of movement’
Identifying ‘core expenditure’ – There is a need to recognise that a significant proportion of the
costs of producing an animated programme may be early stage but also necessary to distinguish
between speculative expenditure and expenditure on a project with identifiable end product.
Agreeing how to deal with mixed content programmes – where productions include live action,
initial proposal is to allow productions where expenditure on animation make up the vast majority
(75%+) of the production costs (animated programmes)
Gaming:
The UK video games industry has been estimated to contribute £1 billion to GDP each year. 2010 VAT
receipts generated £577.5 million for the Treasury 35. There are over 300 games companies currently
operating in the UK and UK based game developers are very export focussed with 95% exporting some
of their products36.
The consultation with the gaming sector that a number of challenges arise from the very differing
business models which can be adopted in the industry. As with the other working groups, a number of
specific priority areas have been identified which need to be addressed.
Agreement on how to define a ‘video game’ in a consistent and comprehensible fashion – the
current proposal is to adopt the model used in the French video games tax credit.
Agreement on which tax relief model to use – either a model based on the specific French
scheme or a model based on UK R&D Credits
Agreement on what should be included in ‘core expenditure’ – focus on development costs and
the exclusion of debugging and maintenance costs and how ‘core expenditure’ could be
35
Association for UK Interactive Entertainment
36
Next Gen. Transforming the UK into the world's leading talent hub for the video games and visual effects industries, NESTA,
February 2011
Page 32 of 100
expanded to include further significant development of a game after the game has been
delivered.
How to accommodate both firms which are product-based’ and hence focussed on the
development and production of major titles and firms which are more ‘service-based’ and
hence focused on mobile apps and online games.
How to provide a support which fits the requirements of all quarters of the industry – both
multinational producers and smaller independent developers
7.7
Summary of Key Aspects of Relief
Key Characteristics of UK Film Tax Relief
Investor participation is not possible – FPC’s only
A percentage of above the line costs are allowable under the use and consume rule
Relief is provided either as an enhanced tax deduction or as a refundable tax credit
There are no caps on the value of the relief provided
The majority of the value of the reliefs is enjoyed by a small number of large productions
which originate with the major US Studios
The Headline Numbers
Cost of relief in 2011
£200m (up from £95m in 2010)
Number of Films Supported 2011
274 productions
Value of UK Film expenditure 2011
£1,258.9m
Film Tax Relief Claims since 2007
1,080 (to May 2011)
Page 33 of 100
8
8.1
Australia
Overview of Industry and Support
With a wide range of possible locations to shoot in, Australia has been selected as the location for a
considerable volume of international production – both feature films and TV shows. In 2009, Australia
was ninth in the world in terms of production investments in feature films with $273m spent.
It is estimated that the total value of feature film and television production in 2009/10 (for both
Australian and foreign) was $731m with Australian documentary production considered to be $102m 37
of the total. In 2010, Australia produced 37 feature films.
The Australian audio-visual industry is a large employer in the country, with approximately 45,000
people employed in the industry, with the majority (15,575) being employed in television
broadcasting.38
The Australian Government’s film and television initiatives in the 2011-12 Budget amount to a €56m
funding boost over four years39.
To assist with the film production industry, Australia has a number of taxation credit system which are
governed by the Division 376 of the Income Tax Assessment Act 1997 (ITAA 1997). The tax credit
system in effect can be divided into three main tax credits namely the location tax offset, the
producer tax offset and a post digital visual effects tax offset. The Australian tax credit system is
administered by Ausfilm.
In addition, there are also other incentives which are operated by Screen Australia which encourage
the development of smaller scale productions and documentaries.
Australia also has specific regional support funds to attract film production. We have summarised some
of the key features of some of the regional initiatives below, however, the main focus of this summary
is on the national tax credits which are available to producers in Australia.
It should be noted that production companies can only access one of the three main federal tax
credits. These credits can be combined with some of the regional tax incentives.
8.2
Specific Film Industry Support
Federal
The Australian Screen Production Incentive Credit was introduced by the Australian Government in
2007. The incentive includes three main supports namely, the Producer Offset, the Location Offset,
and the Post Digital and Visual Effects Offset.
37
Screen Australia website
38
Screen Australia website
39
Parliament of Australia, Department Library
Page 34 of 100
The Producer Tax Offset (PTO)
Producer Offset was introduced to encourage support for the Australian screen production industry.
The Producer Offset provides a refundable tax offset of between 40% (generally films) and 20%
(generally television) depending on the type of production) on Qualifying Australian Production
Expenditure (QAPE).
The Location Tax Offset (LTO)
The Location Offset is designed to ensure Australia remains competitive in attracting shoots for largebudget film and television productions, and is aimed at providing increased opportunities for
Australian casts, crew, post-production companies and other screen production service providers to
participate in these productions.
The offset provides a 16.5% rebate calculated on Qualifying Australian Production Expenditure (QAPE).
Post Digital and Visual Effects Production - (“PDV”) Offset
The PDV Offset is aimed at enabling the Australian visual effects, post production and animation sector
to continue to develop its reputation as both a quality but low cost service. The PDV offset provides a
rebate on Qualifying Australian Production Expenditure (QAPE) of 30%
A summary of the key features of each of the Australian federal reliefs is outlined in the table below.
Table 15: Australian Federal Reliefs summary
The Producer Offset
The Location Offset
Post Digital and Visual
Effects (PDV) Offset
Provides a rebate on Qualifying
Provides a 16.5% rebate
PDV offset provides
Australian Production Expenditure
calculated in QAPE
a 30% rebate
(QAPE) subject to expenditure
Films with a minimum
calculated on QAPE
thresholds
total QAPE of $15m
of at least $500,000
40% - theatrically released feature
Television series with an
Creation / editing of
films, including documentary,
average QAPE of $1m
audio and visual
animation and IMAX
per hour of finished
effects
20% for single episode dramas and
production
documentary (including features
released only on DVD or on-line),
television drama, or documentary
series / seasons and short form
animation
Regional Incentives - NSW
There also many regional incentives in place in Australia, across the various States. For the purpose of
this exercise, New South Wales has been taken as an example.
New South Wales offers many incentives which are operated through Screen NSW.
Page 35 of 100
The incentives are to encourage early and advanced stage levels of film production and to “make NSW
the premier destination for screen production 40”. Screen NSW is the authority in the region established
to administer the supports which can be broken down into the following:
Development
Early and Advanced Stage Development incentives and also various supports for training and
relevant workshops
Production
Funding for projects produced or post-produced in NSW and which have the rest of their
finance in place in order to maximise cultural and economic benefits to the state through
support of NSW screen projects.
Production funding for short term cash-flow requirements and medium term loan finance are
also available.
Interactive
New guidelines have recently been introduced in relation to the funding.
Media Fund
The IMF is for creative digital content projects that are commercially oriented and destined
(IMF)
for distribution on web-enabled platforms or devices and interactive video game consoles.
The Fund focuses on interactive content, a key element in innovation with the ability to
benefit other sectors such as health, finance and education
Career
Assists in the career development of film production personnel.
Pathways
Industry and
Professional development, annual events including seminars, conferences, workshops,
Audience
professional mentorships
Development
Other
Incentive such as the NSW Film & Television Industry Attraction Fund (FIAF) and the Regional
Incentives
Filming Fund (RFF) - offer incentives to production companies to attract film projects to the
State. The attraction fund is discretionary and incentives are provided in the form of rebates
and are determined on a case-by-case basis, taking into account demonstrable benefits
including; job creation, production expenditure, skills development and technology transfer.
In 2010/11 Screen NSW approved Production Finance of $9.6m in 48 approved screen projects, which generated $143 million
expenditure in NSW. For every $1 invested $15 has been expended in the State41.
8.3
Scope of Activity Eligible for Relief
The following sections summarise the main provisions and characteristics of the three Federal relief
programmes.
Qualifying Production Companies
Table 16 Qualifying Production Companies - by Support Type
The Producer Offset
40
Screen NSW Annual Report 2010-11
41
Screen NSW, Annual Report 2010-11
The Location Offset
Post Digital and Visual Effects
Page 36 of 100
(PDV) Offset
Company must be an Australian
Australian resident company,
Australian company, or a non-
company, or a non-resident
or a foreign company with an
resident company with a
company with a permanent
Australian Business Number
permanent establishment in
establishment in Australia and
that is operating with a
Australia or a foreign company
an Australian Business Number
permanent establishment in
with an Australian Business
(ABN)
Australia
Number that is operating with a
The applicant company must
The applicant must be the
permanent establishment in
have either carried out, or
company that is responsible
Australia
made the arrangements for
for all the activities involved
The company must be
carrying out all the activities
in making the film in
responsible for all the activities
necessary for making the
Australia
that were necessary for PDV
production
production in Australia.
Qualifying Productions
Table 17: Qualifying Productions - by Support Type
The Producer Offset
The Location Offset
Post Digital and Visual Effects
(PDV) Offset
Demonstrate Significant
Eligible productions that
Eligible formats include
Australian Content (SAC), and
qualify include feature films,
feature films, telemovies,
Meet minimum expenditure
telemovies, television series
miniseries, and television
thresholds relevant to the type
- (including documentary,
series (including documentary,
of production
reality, and animation)
reality, animation and live
Demonstrate requirements for
Films with a minimum total
action)
commercial
QAPE of A$15 million
Productions do not need to be
broadcast/exhibition/distribution
Television series with an
filmed in Australia
Meet minimum format lengths
average QAPE of A$1 million
Official co-productions are
per hour of the finished
eligible for the Producer Offset
production
Page 37 of 100
Qualifying Expenditure
Table 18 - Qualifying Expenditure - by Support Type
The Producer Offset
The Location Offset
Post Digital and Visual Effects
(PDV) Offset
40% for theatrically released
Goods and services
Qualifying Australian Production
feature film productions,
provided in Australia
Expenditure relates to goods and
including documentary,
including cast and crew
services provided in Australia
animation and IMAX
The use of land in
The use of goods in Australia at
20% for single episode dramas
Australia
the time they are used in making
and documentary (including
The use of goods in
the production relating to:
features released only on DVD or
Australia at the time they
on-line), television drama or
are used in making the
documentary series/seasons and
film or programme
-
or visual effects
-
short film animation
The Producer Offset requires
8.4
Creation or editing of audio
Activities that are reasonably
related to these activities
-
Salaries, per diem’s and
minimum levels of QAPE linked
travel for PDV related staff
to whether the production is a
and crew as well as rental of
feature film, drama,
relevant facilities and
documentary or animation
equipment
Operation of Reliefs
General provisions
All the federal incentives are paid in the form of cash rebates to the producer. The incentives can be
combined with State and Territory government incentives and payment is issued through the Australian
Taxation Office (ATO).
Timing of the Tax Repayment
Before repayment of any of the tax credit, the applicable company must obtain a final certificate in
relation to the QAPE from Screen Australia. On issue of the final certificate, it must be provided to the
Australian Taxation Office with the appropriate tax return as detailed below:
Page 38 of 100
Table 19 Timing of Relief - by support type
Producer Offset
Location Offset
Post, Digital and Visual Effects
Production
Final Certificate with the
Final Certificate with
Final Certificate with
claimant company’s tax
the claimants
the claimant company’s
return at the end of the
company’s tax return
tax return at the end of
financial year in which the
at the end of the
the financial year in
production is completed.
financial year in which
which the post, digital,
The ATO will provide a refund
the production is
visual effects work is
of a tax credit where the
completed or QAPE has
completed.
amount exceeds the amount
ceased being incurred.
The ATO will provide a
of any existing tax liabilities
The ATO will provide a
refund of a tax offset
owed by the applicant
refund of a tax offset
where the amount
company
where the amount
exceeds the amount of
exceeds the amount of
any existing tax
any existing tax
liabilities owed by the
liabilities owed by the
applicant company
applicant company
In general the repayment generally takes place three weeks from lodgement of the annual income tax
return with the Australian Taxation Office in conjunction with the receipt of the Final Certificate from
Screen Australia.
Monetisation of Tax Credit
The monetisation of tax credit is available under a Producer Offset loan and is available from
Australian Export Finance & Insurance Corporation to a production company to finance eligible
Australian film, documentary and television productions with international distribution agreements.
The loan is specifically designed to help smaller productions that are eligible for the Producer Offset
but may have difficulty in attracting finance in the commercial market. EFIC may also be able to assist
in the financing of larger productions, subject to additional due diligence. EFIC will lend an amount
equal to up to 90% of the estimated Producer Offset Rebate, based on the Provisional Certificate. The
minimum loan amount is $100,000, and the maximum is $500,000
Page 39 of 100
Other
Recently the Australian Producer Offset was improved to encourage the production of low budget
documentaries which otherwise would not qualify for the minimum QAPE levels.
Screen Australia will now directly fund such documentaries through a separate Producer Equity budget
estimated to be approximately $2m/$3m budget per year.
8.5
Relief Caps or Restrictions
The following caps and restrictions are relevant to each of the three Federal reliefs:
Caps on Supports
Table 20 Caps on Support by type
Producer Offset
Location Offset
Post Digital and Visual Effects (PDV)
Offset
There is no cap or sunset
There is no cap or sunset
There is no cap or sunset clause on
clause on the incentives
clause on the incentives
the incentives
Restrictions on Supports
Table 21 Restrictions on Support by type
Producer Offset
Location Offset
Post Digital and Visual Effects (PDV)
Offset
Minimum format lengths
No cultural or content tests
No cultural or content tests
Immigration regulations
Production must be awarded
A producer may access only one of
apply to importing cast and
a final certificate by Screen
the Australian Government
crew
Australia – ensuring various
incentives for each eligible project
Production must be
tests are met – for example
The Minister for the Arts has issued
awarded a final certificate
if QAPE is less than $50m
to the company a final certificate
by Screen Australia –
that total QAPE must be at
for the film in relation to the PDV
ensuring various tests are
least 70% of the company’s
tax offset
met – for example
total ‘production
Immigration regulations apply to
‘significant Australian
expenditure’.
importing cast and crew
content’
Page 40 of 100
8.6
Summary of Key Aspects of Relief
Key Characteristics of the Screen Production Incentives in Australia
The film support scheme for international productions in Australia is a tax credit system with
variable credits available for QAPE – depending on the scheme – Producer Offset, Location
Offset, and PDV Offset
The relief targets the entertainment industry (Film, TV, Post Digital and Visual Effects and
Animation)
The relief is structured so as to favour large value productions
All expenditure including above the line is included in calculating Qualified Australian
Production Expenditure
There are certain minimum levels of QAPE expenditure but there are no caps on the value of
the tax rebate,
In relation to QAPE, there are some restrictions in relation to Significant Australian Content
(SAC) testing
The Headline Numbers
Cost of relief in 2011
(Location/PDV)
$16.9m
Cost of relief in 2011 (Producer)
$128m
Number of Films Supported 2011(Location /PDV)
5 productions
Number of Films Supported 2011(Producer)
155 productions
Value of relief since 2007 (Producer /Location / PDV)
$412m
Value of relief 09/11 (Producer)
$246m
Estimated QAPE since 2005 (Location / PDV)
€2.4bn
Page 41 of 100
9
Belgium
9.1
Overview of Industry and Support
Belgium has a film and TV industry with annual film production activity of circa 34 features, 171 short
films and some 75 documentaries.
The Belgian film industry is supported by a Government led Tax Shelter that encourages the
production of European audio-visual works by giving tax incentives to companies that provide
investment in them. A company receives a tax benefit of 150% of the amount invested, with a ceiling
of 50% of its retained taxable profits.
The Tax Shelter is now the most important source of finance for the Belgian film industry contributing
between €120 to €150 million a year to the industry and since its inception in 2003 the Tax Shelter has
supported production volume of €700m.42
Wider Support for the Film Industry
In addition to the Belgian Tax shelter there are also specific regional support funds to attract film
production. Summarised below are some of key features of the regional initiatives below.
Flanders - Audiovisual Fund (VAF)
The VAF, was set up by the Flanders government in 2002 to support audiovisual production in Flanders
as well as international co-productions, in the Flanders region of Belgium.
The Fund performs four main tasks. It provides financial support for audiovisual productions and
promotes these in Flanders as well as abroad. The Fund also grants scholarships, finances professional
training and supports/organizes workshops as well as carrying out surveys on the audiovisual field.
It receives an annual grant from the Flanders government which in 2009 was worth €16.5 million. A
minimum of 80% of the annual budget goes to production support. Filmmakers can apply for support to
fiction, documentary, animation and so-called Filmlab projects. There are four types of support:
scriptwriting, development, production and promotion.
Flanders - The VAF/Media Fund
The VAF Media fund was launched in 2011 to support the production of independent television series,
co-financed by a Flemish broadcaster. The Media Fund supports three genres of series: animation,
documentary and fiction. The total budget of the Media Fund for 2012 is €6.52 million.
There are several types of support possible within the Media Fund: scriptwriting, development and
production.
42
Global Media & Communications Quarterly Spring Issue, 2012
Page 42 of 100
For foreign series a minimum of 20% of the budget must be financed through a Flemish producer and
the majority of the finance must already be in place. This means a minimum of 50% of the total budget
must already be financed or the project must already have been granted support by a public film body.
For foreign producers interested in accessing VAF support, the best and easiest way is to first find a
local producer.
Walloon - Wallimage
Wallimage supports the audiovisual industry (productions and enterprises) in the Walloon region of
Belgium. The Fund was set up in 2001 and is based in Mons. Since 2009, the two regions Wallonia and
Brussels joined forces to invest in Walloon and Brussels audiovisual productions.
The Fund's strategy is to act as a co-producer for full-length feature films, television films,
documentaries and animated films (feature or series) that use Walloon and/or Brussels talent and
technicians, during either production or post-production.
The Fund has a yearly budget of €2.5 million to invest in Walloon feature films, €1million for animated
series pilots and €2 million for mixed Walloon/Brussels co-productions43. They also support the setup
and development of audiovisual service companies through capital investments or conditional loans.
Finally, Wallimage offers practical assistance, such as a database of Walloon and Brussels talents. It
also coordinates the actions of the Walloon Film Commissions.
Since its launch, the Walloon Fund has supported more than 80 feature films for a total investment of
over €20 million.
Investment funds
Investment companies have used the Tax Shelter as an opportunity to develop innovative investment
solutions.
From the outset “ad hoc” investment companies have been created for presenting on the market a
selection of films which are eligible for the Tax shelter. All of them have developed the financial
aspects of the Tax shelter by proposing an appropriate timing for the investments and by negotiating
adequate rulings with the Tax authorities. Some of them take care of all the formalities related
thereto (collecting the attestations from the authorities, respecting the deadlines etc.).
Note: for the remainder of this section we have focussed only on the features of The
Belgian Tax Shelter as it is the only countrywide tax based initiative
43
Global Media & Communications Quarterly Spring Issue, 2012
Page 43 of 100
9.2
Specific Film Industry Support
The Belgian Tax Shelter is an investment based tax incentive designed to encourage the production of
audiovisual works. It is an initiative that applies to the whole of Belgium and allows corporate
investors exemptions on their taxable profits.
Each year over 1,000 Belgian companies make funds available for investment in film production.
Investments are mainly in co-productions, the majority of which are French.
Form of Investment
An investment in an audiovisual production has to be made in two ways:
direct investment – acquisition of rights for commercial exploitation of the film
in the form of a loan – which the production company will repay in due course
Companies who invest and wish to qualify for relief have to sign a framework agreement with a Belgian
or foreign production company.
9.3
Scope of Activity Eligible for Relief
Investors - qualifying criteria
The tax shelter is a corporate based tax relief which is open to all resident Belgian companies and
Belgian establishments of non-resident companies with the following exceptions:
companies whose main purpose is the development and the production of audiovisual works
television broadcasting companies
Eligible Productions
The audiovisual work must be approved by the competent departments of the Flemish, French or
German speaking communities of Belgium as a European work.
The production must be an audiovisual work belonging to one of the following categories:
a full, medium and short-length film, a documentary or an animated film intended to be shown
in a cinema
an animated series for television
a documentary or long-film for television
a series for children or youngsters
Eligible Expenditure
There is no requirement for the production to be shot in Belgium – merely that the Production
costs are taxable in Belgium
This facilitates foreign actor costs paid via a Belgian agency and Belgian co-producers working
in different countries
Investment Amounts allowable
The following expenditure thresholds exist under the programme
Page 44 of 100
The amounts allowed for investments under the framework agreement must not exceed 50% of
the total production budget
The maximum investment amount in the production cannot exceed €500,000
The split of the investment is restricted as follows:
o
Direct investment – A minimum of 60% is required
o
Loans – Not greater than 40%
Total expenditure incurred in Belgium has to be 150% of the ‘direct investment amount’ i.e.
150% of the non-loan element
9.4
Operation of Reliefs
Production Timeline
The production and operating costs must be incurred within a maximum of 18 months after the signing
of the framework agreement
Claiming Investment Relief
Relief is granted by reducing taxable profits by 150% of the investment amount.
However, the company needs to achieve certain retained taxable profits in the year in order to be able
to make a claim. Maximum relief in any tax year is the lower of:
50% of ‘taxable retained profits’ (before the tax free reserve) or
€750,000 – i.e. the maximum relief claimable in any production (150% of maximum allowable
investment of €500,000)
Unused Relief
If the company does not have sufficient taxable profits in the year, any unused relief can be carried
forward against profits of future years. Note that this carry forward is not unlimited so a good timing –
not too late, not too soon - is a prerequisite for a high Tax and financial return).
Page 45 of 100
Table 22 Worked Example of Belgium Film Tax Shelter
Source: Kingdom of Belgium, Federal Public Service
9.5
Relief Caps or Restrictions
Caps
A producer may attract several investors but the total Investment by corporate investors
cannot exceed 50% of the production budget
Maximum investment is €500k per corporate investor
Restrictions
The relief is only available to corporate investors
A qualifying investor must maintain its entire investment in full ownership throughout the
entire production period of the audio-visual work (loans and investment)
Computer Games are not included
Page 46 of 100
9.6
Summary of Key Aspects of Relief
Key Characteristics of the Belgian Tax Shelter
It is an investor based tax relief
The relief is available to Belgian corporations or Belgian subsidiaries/branches of foreign
companies
Maximum investment is €500,000 per company per production
The Maximum tax relief per company per production is c€250k (€750,000 @33.33%)
The production does not have to be shot in Belgium – it just requires the expenditures to be
taxable in Belgium
The Headline Numbers
Investment amount generated for Films in 2011 -
€100m
Production volume since 2004 using tax incentive
€700m (est)
Number of films produced in Belgium during this period
Increase 250%
Page 47 of 100
10
10.1
Canada
Overview of Industry and Support
Canada has a long history of film making and it is estimated that one quarter of all Hollywood films are
shot in Canada44. Canada has a favourable currency exchange rate with the US, skilled labour, good
film infrastructure and a generous body of film-centric tax incentive schemes - all of which have
contributed to the success of the industry in Canada.
The Canadian screen based production industry comprises four sectors:
Canadian Film and Television production
Foreign Location and Service Production
Broadcaster In-House production
Convergent Interactive Digital Media Production.
The volume of all film and television production in Canada reached an all-time high of $5.49 billion in
2010/11. Employment in Film and television production in Canada reached 128,000 in 2010/1145.
Canada provides a wide range of film and television production tax incentives and other government
support initiatives, such as loans and grants, which are attractive to indigenous producers and also to
foreign based producers who choose to locate their production in Canada.
Tax Based Support Initiatives
Tax incentives are provided at both Federal and Provincial level and are predominantly in the form of
refundable tax credits, although in some provinces they are provided in the form of cash grants.
Provincial supports differ significantly between provinces. For example; in Alberta and New Brunswick
the relief is in the form of cash grants whereas in Ontario they are given in the form of tax credits. As
a result, the provinces effectively compete with each other to attract indigenous and foreign
productions.
For the purposes of this report, we have summarised the reliefs available in Ontario.
44
45
Government of Canada
An Economic Report on the screen based production industry in Canada, CMPA & APFTQ 2011
Page 48 of 100
Federal Reliefs:
The two main federal tax reliefs administered by Canadian Audio-Visual Certification Office (CAVCO)
and Canada Revenue Agency (CRA) are as follows:
Table 23 Canadian Federal Film Supports
Form of relief
Targeted at
The Film or Video Production Services Tax Credit (“PSTC”)
Canadian and foreign producers
The Canadian Film or Video Production Tax Credit (“CPTC”)
Canadian producers46
Provincial Reliefs – Ontario
A high concentration of Canada’s film production companies, distribution firms and labour force is
located in Ontario, specifically in the Greater Toronto Area. Ontario's film and television industry
contributed $1.26 billion to the provincial economy in 2011—an increase of $300 million over 201047.
This production activity accounted for almost 30,000 full-time direct and spin-off jobs.
The tax regional reliefs in Ontario that are administered by Ontario Media Development Corporation
(OMDC) are as follows:
Table 24 Provincial Tax Reliefs
Form of relief
Targeted at
1.
Ontario Film & Television Tax Credit (“OFTTC)
Ontario based producers
2.
Ontario Production Services Tax Credit (“OPSTC”)
Ontario & foreign producers*
3.
Ontario Computer Animation and Special Effects Tax Credit
Ontario & foreign producers*
(“OCASE”)
4.
Ontario Interactive Digital Media Tax Credit (“OIDMTC”)
Ontario & foreign producers*
* Must still be a Canadian Company but can be foreign control
Note: For completeness it should be noted there two other related tax credits available in Ontario –
the Ontario Book Publishing Tax Credit and the Ontario Sound Recording Tax Credit but we have not
included details of those credits in this report as they are outside the general scope of this report.
Wider Support for the Film Industry
In addition to the tax credit incentives outlined above, Canada also has a number of other state
support incentives to assist the film industry
46
Treaty co-productions also qualify under certain circumstances – mainly that production is primarily Canadian content
47
Industry Profile, OMDC, 2012
Page 49 of 100
Federal Support
Canadian Media Fund (CMF)
This is a fund specifically established to provide financial and industry research support for the
production of high quality, distinctively Canadian television programs and digital media products. The
CMF receives contributions from Canada’s cable and satellite distributors and the Government of
Canada.
The CMF is a non-for-profit corporation with a budget of $375m Cdn. The CMF actively promotes the
creation of television programs and related digital media in genres such as children’s & youth,
documentaries, drama & variety and the performing arts. The CMF provides support through two funds:
Experimental Stream - which encourages the development of innovative, interactive digital
media content and software applications.
The Convergent Stream - which supports the creation of convergent television and digital
media content for consumption by Canadians anytime, anywhere
Federal Support
Canada Feature Film fund
The objective of the CFFF is to increase audiences for Canadian feature films in Theatres throughout
the country. The fund is administered by Telefilm Canada and has two financing instruments within
this program:
Selective component: primarily for producers without a box office track record sufficient to
obtain a performance envelope.
Performance component: Resources are reserved for producers who achieve success at the
Canadian box office in the form of performance envelopes.
Provincial Support
Ontario - Intellectual Property Development Fund (IP Fund)
The IP fund was set up to help organisations that have a proven track record in television, film, video
games, webisodes, mobisodes, internet properties and other screen based content to get projects off
the ground.
The initiative allows organisations to recoup up to 30% of the costs of moving projects from concept to
production such as story rights, concept art, game design, technical specification documentation,
prototypes and pitch materials.
Provincial Support Ontario – OMDC Film Fund
This fund was set up to support domestic feature films in the final stages of development and
production financing. The fund allows Ontario based organisations to complete their financing by
providing up to $25,000 Cdn to development projects and up to $400,000 for production funding.
Page 50 of 100
Video Gaming Industry
The Canadian video game industry is very strong and is reported to be valued at $1.7 Cdn billon dollars
to the Canadian economy. There are now 16,000 people directly employed in the industry compared to
32,000 in the US48.
The Canadian industry is concentrated around traditional console game development and publishing
with 68% of all employees working on games for this platform. The industry is supported through the
same federal and provincial tax credits system that applies to TV and film.
Note: for the remainder of this section we have focussed only on the features of the
federal and Ontario tax incentives
10.2
Specific Film Industry Support
The tax reliefs available extend to both indigenous and foreign owned production companies that have
establishments in Canada. In most cases, federal and provincial tax credits can be combined thus
maximising the relief available to production companies.
Each province has its own unique tax credit programs to further incentivise film production
corporations. As stated above, for illustration purposes, we have summarised the reliefs of one
province (Ontario) in this summary report.
Federal Relief
At the federal level, producers have access to government funding through two tax credits as follows:
Table 25 Canadian Federal Reliefs - Detail
The Film or Video Production Services
Credit (“PSTC”)
Type of Relief
Labour based tax credit
The Canadian Film or Video Production Tax
Credit (“CPTC”)
Labour based tax credit
Can be assigned to lenders as security for
bridging finance
Applicable
Available to Indigenous and
Available to Canadian domestic producers
International Productions
who produce eligible Canadian content
Must have a permanent
establishment in Canada
48
Entertainment Association of Canada, 2011
Page 51 of 100
Provincial Relief
Statistics Canada figures show that Canadian film, television and video production companies provided
$643.6 million in salaries, wages and benefits to workers in the sector in 2009. Ontario accounted for
well over a third of those payments, disbursing $252.9 million in salaries—more than any other
province.
Film and TV producers in Ontario currently have access to provincial government funding through a
number of tax credits as well as the Ontario Media Development Corporation “OMDC” Film Fund, the
OMDC Export Fund and the Entertainment and Creative Cluster Partnerships Fund.
OMDC also provides funding to trade and event organizations in the production sector through the
Industry Development Program for events and activities that stimulate the growth of the industry.
The following four tax credits are available to producers in Ontario:
Table 26 Canadian Provincial (Ontario) Reliefs - Detail
Ontario Film & Television Tax Credit (“OFTTC)
Type of Relief
Labour based tax credit
Ontario Production Services Tax Credit
(“OPSTC”)
Expenditure (labour and production
costs) tax credit
Applicable
Available to domestic producers for
Available to both Canadian and
eligible Ontario labour expenditure
foreign owner corporations
Must own copyright or contracts
directly with the copyright owner
Residency conditions
Expenditure must be incurred by a
The producer must have a
qualifying production corporation in
permanent establishment in Ontario
respect to eligible Ontario production
and file an Ontario corporate tax
return
Applicability with
Can be combined with the Federal
Can be combined with the federal
other Reliefs
CPTC tax credit
PSTC tax credit incentive
Type of Relief
Ontario Computer Animation and
Special Effects Tax Credit “OCASE”
Labour based tax credit
Ontario Interactive Digital Media Tax
Credit (“OIDMTC”)
Tax credit for labour and eligible
marketing and distribution
expenditure
Available to both Canadian and
foreign owner corporations
Available to qualifying corporations
for interactive digital media
products
Applicable
Available for eligible Ontario
computer animation and special
effects activities
Note: All or substantially all (at least
90%) of the products MUST be
developed in Ontario
Residency conditions
Must have a permanent establishment
in Ontario and file an Ontario
corporate tax return
Must have a permanent
establishment in Ontario and file an
Ontario corporate tax return
Applicability with
other Reliefs
Can be combined with OFTTC and
OPSTC tax credit incentives
N/A
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10.3
Scope of Activity Eligible for Relief
We have summarised the main qualification criteria for both the federal and provincial tax credits
below:
Activity Eligible for Federal Reliefs
Table 27 Canadian Federal Reliefs - Eligible Activity
The Film or Video Production
Services Credit (“PSTC”)
The Canadian Film or Video Production Tax
Credit (“CPTC”)
Qualifying
Canadian and foreign based
Canadian domestic producers of eligible
producer
producers with a permanent
Canadian content films and television
establishment (i.e. Production
productions
office) in Canada
taxable Canadian corporation that is either a
Corporation’s primary activity
treaty co-production or a film or video
must be in relation to a film or
production that meets the requirements of the
video production business or
Income Tax Regulations
production services business
Eligible
Qualifying non-Canadian content
The Canadian Audio-Visual Certification Office
Productions
film and TV productions
(CAVCO) are responsible for determining if a
production meets the CPTC program
Applicant must either own the
requirements
copyright in the film during the
production period or be directly
CAVCO provide strict guidelines as to the type
engaged by the copyright holder
of content eligible for relief
to provide production services
A production must meet 6 out of 10 of CAVCOs
creative point requirements to qualify
Eligible
Relief given for qualified
Relief available for qualified Canadian labour
Expenditure
Canadian Labour Expenditure
expenditure
Page 53 of 100
Activity Eligible for Provincial Reliefs
Summarised below are the main eligibility criteria for the provincial tax credits:
Table 28 Canadian Provincial (Ontario) Reliefs - Eligible Activity
Ontario Film & Television Tax Credit (“OFTTC)
Ontario Production Services Tax Credit (“OPSTC”)
Film or television production made by a
Production cannot be on the list of excluded
qualifying production company must meet 6
genres (see OFTTC opposite)
Canadian content points
Productions must exceed minimum expenditure
International treaty co-productions are exempt
levels
Production cannot be in the excluded genre
(news, current affairs, talk shows, game shows,
sports shows, award shows, fundraising shows,
reality TV)
Ontario Computer Animation and Special Effects Tax Credit
“OCASE”
May be claimed in respect of eligible computer
Ontario Interactive Digital Media Tax Credit (“OIDMTC”)
Productions of “specified” and “non-specified”
animation and special effects activities
interactive media products
Eligible animation or visual effects are defined as
Specified products are those products developed
those created using digital technology
under a fee for service type arrangement
Activities include: designing, modelling,
rendering, lighting, painting, animating and
compositing
Excluded activities include: scientific research,
experimental development and overhead costs
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10.4
Operation of Reliefs
Federal Reliefs
The federal PSTC and CPTC reliefs are refundable tax credits. Therefore, if no tax is payable by the
corporation for a given fiscal year, the corporation will be reimbursed by the amount of the tax credit,
subject to the right of the CRA to offset any other amount owed by the corporation.
Other features of the relief are as follows:
Table 29 Details of operation of Federal Reliefs
The Film or Video Production
Services Credit (“PSTC”)
Rate of relief
The Canadian Film or Video Production Tax
Credit (“CPTC”)
Relief given in the form of a
Relief available at a rate of 25% of
refundable tax credit worth 16% of
qualified labour expenditure
qualified Canadian Labour
The qualified labour expenditure may not
Expenditure
exceed 60% of the cost of production net
of assistance (or 15% of the total cost of
production net of assistance)
Timeline for
The credit is given on an annual basis -when a corporation files its annual tax return
claiming relief
Allowable
Only the labour expenditures incurred in the taxation year, or the preceding
expenditure
taxation year, and paid by the corporation in the taxation year, or within 60 days
after the end of that year will qualify as eligible labour expenditure
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Provincial Reliefs
Similar to the federal system, all tax credits are given on an annual basis, either by way of deduction
from corporation tax or by way of refund - when a corporation files its annual tax return. The tax
credit is based on expenditure incurred in that fiscal year. The additional features of each tax credit
are as follows:
Table 30 Details of operation of Provincial (Ontario) Reliefs
Ontario Film & Television Tax Credit (“OFTTC)
Ontario Production Services Tax Credit (“OPSTC”)
Rate
Approvals
Relief given in the form of a
The relief is given in the form of a
refundable tax credit of 35%
refundable tax credit of 25% ‘qualified’
‘qualified’ Ontario labour expenditure
Ontario production expenditure
A certificate of eligibility is required
The OPSTC is jointly administered by the
from the Ontario Media Development
OMDC and the Canadian revenue
Corporation (OMDC)
A certificate of eligibility is required from
the OMDC
Additional
An enhanced rate of 40% on the first
The OPSTC may be claimed along, or in
Reliefs
$240,000 is allowed for first time
addition to the federal PSTC
producers
Ontario productions that are produced
outside the ‘Greater Toronto Area’
receive a further 10% bonus on all
Ontario labour expenditure
Rate
Ontario Computer Animation and Special
Ontario Interactive Digital Media Tax Credit
Effects Tax Credit “OCASE”
(“OIDMTC”)
The relief is given in the form of a
For non-specified products the relief is
refundable tax credit of 20% of eligible
given in the form of a refundable tax
Ontario labour expenditure incurred by
credit of 40% of eligible Ontario labour
a qualifying corporation
expenditure and marketing and
distribution expenditure
Additional
Reliefs
N/a
For corporations availing of OIDMTC for
‘specified products’ the relief is given in
the form of a refundable tax credit of
35% of eligible Ontario labour
expenditure and marketing and
distribution expenditure
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10.5
Relief Caps or Restrictions
Caps & Restrictions on Federal Reliefs
Table 31 Federal Reliefs - Caps & Restrictions
The Film or Video Production Services Credit
(“PSTC”)
The Canadian Film or Video Production Tax Credit
(“CPTC”)
The relief is not available where the
A minimum of 75% of the total costs toward producing
production has received a tax credit under
the production (other than excluded costs) must be
the CPTC
paid to Canadian individuals or corporations
The minimum expenditure requirements
A minimum of 75% of the total post-production costs
are as follows:
must be incurred for services provided in Canada
o
$1m for a feature film
The production will have be shown in Canada within
o
$200k for a one hour TV episode
the two-year period following its completion
o
$100 for a 30 minute TV episode
The production company or a related taxable Canadian
corporation must retain an acceptable share of
revenues from the exploitation of the production in
non-Canadian markets
For both reliefs, there is no cap on the amount of credit that can be received and the credit is
completely refundable.
Productions that do not qualify for federal PSTC or CPTC relief are as follows:
News, current event or public affairs programming, or a programme that includes weather or
market reports
Talk and game shows
Sporting and award events
Reality television
Productions that solicit funds
Pornography
Advertising
Industrial, institutional or corporate productions
A gala presentation or an awards show News
Page 57 of 100
Caps & Restrictions on Provincial Reliefs
Table 32 Provincial (Ontario) Reliefs - Caps & Restrictions
Ontario Film & Television Tax Credit (“OFTTC)
Ontario Production Services Tax Credit (“OPSTC”)
Only a business that is incorporated in Canada may
Productions that receive OFTTC are not
claim the OFTTC
allowed to claim OPSTC relief
The production has to be predominantly shot in
o
Minimum expenditure requirements
Ontario (although exceptions for documentaries,
is $1M except in the case of a series
interprovincial co-productions and international
consisting of 2 or more series
treaty co-productions)
o
episode.
Spends at least 75% of its total final costs in
Ontario expenditures
$100K for a 30-minute television
o
$200K for a longer television
episodes
If for television is suitable for a minimum 30
minute time slot
There is no limit on the amount of eligible
The production needs to have an agreement with
Ontario production expenditure which may be
an Ontario-based distributor or a Canadian
eligible
broadcaster to be shown in Ontario within two
There is no cap on the amount OPSTC per
years of completion, and if for television, is
project or amount per annum claimable by a
guaranteed to be shown between 7:00pm and
qualifying corporation
11:00pm
Ontario Computer Animation and Special Effects Tax Credit
Ontario Interactive Digital Media Tax Credit
“OCASE”
(“OIDMTC”)
The production has to be produced for commercial
Eligible marketing and distribution expenses
exploitation
are capped at $100k per non-specified
Eligible animation or visual effects means animation
product
or visual effects created using digital technologies
There is no cap on the amount of eligible
but does not include:
Ontario labour expenditure which may
o
audio effects, in-camera effects, credit
qualify
rolls, subtitles, animation or visual effects
There is no cap on the amount per project
all or substantially all of which are created
OIMTC claimable
by editing activities, animation or visual
effects for use in promotional material for
the eligible production
The production is not one for which public financial
support would be contrary to public policy.
There is no cap on eligible Ontario labour
expenditures
Page 58 of 100
10.6
Summary of Key Aspects of Relief
Key Characteristics of the Canadian tax incentives
Tax credit system – no investor participation
Combines Federal and Regional Reliefs
Features significant regional variations in relief
Mainly targeted at relief for Canadian labour
The federal PSTC and CPTC tax credits are fully re-fundable
Overall system of reliefs, includes specific narrowly targeted reliefs for VFX, video gaming and
Animation
The Headline Numbers
Film / Television Industry Production 2010/11
$5.49bn
WTE in 2010/11
128,000
Federal and provincial tax credit as % of total film production
30%
Total public funding for Canadian film production
€2,387m
No of Canadian feature films
86
No of Canadian television series
585
Page 59 of 100
11
11.1
The Czech Republic
Overview of Industry and Support
In the -1990s, the Czech Republic had a reputation as a film-friendly venue with a low cost of
production. Since then, the Czech Republic has faced considerable competition from other European
countries which have introduced aggressive film rebate schemes to lure International film makers. In
particular, there is a perception that the Czech Republic has been losing film-industry production
activity to Hungary which introduced lucrative tax breaks in 2004.
In 2011, film and TV production in the Czech Republic stood at c$82m (c€65m) and film box office
market standing at €49m. Currently however the industry, which is largely based in and around
Prague, is currently undergoing a period of considerable funding and financing uncertainty.
In late 2011 the Czech film support system lost its major source of financing – income from advertising
from Czech’s public broadcaster and this has led to difficulty in raising production finance.
The new Film Act, which will impose a 2% levy on the state broadcaster’s revenue from advertising,
will be re-directed to the film fund but at the time of writing, this had not yet been approved by
parliament and consequently the industry missed out in 2012 on potential funding of CZK 150m – 200m
(€8m-€9.5m).
The Film Industry is currently supported through the Film Industry Support Programme, which offers
filmmakers rebates on their production-related costs when they film in the Czech Republic.
The support programme has an annual budget of circa CZK 400m (c€16m) and grants are awarded to
qualifying projects on a first-come, first-served basis. In 2011 the Czech Ministry of Culture budgeted
CZK 300 million (17.6 million USD) for rebates for the full year but the fund was dispersed by March. In
particular, it is the limited budget of this support programme that is a seen as a disadvantage.
There is no support scheme for computer gaming in the Czech Republic.
Wider Support for the Film Industry
State Fund for Support and Development of Czech Cinematography
This fund was set up in 2002 to support the development of local film production and distribution. The
fund, which was the key fund for the support of Czech cinematography, more or less ended in
November 2011 when Czech’s public broadcaster stopped paying annual contributions of CZK 150m
(€6m) to the fund from its advertising income.
In mid-2012 the Czech Government did commit CZK 50m (€2m) in order that the fund could continue
until the end of the year. There is no legal entitlement to this relief under this fund and it is at the
discretion of its funding council who receives funding.
Page 60 of 100
This fund is due to be replaced by the new Film Act in 2013, which is not yet passed by parliament,
and will be funded by imposing a 2% levy on the advertising revenue of commercial TV stations.
European Fund
Czech resident companies can also benefit from European Union funds for the support and
development of European cinematography.
Note: for the remainder of this section we have focussed only on the features of
The Czech Film Industry Support Programme as it is the only tax based initiative
11.2
Specific Film Industry Support
The Czech Film Industry Support Programme (FISP)
The FISP, which was approved by the European commission in 2010, offers filmmakers rebates of up to
20% on their production-related costs when they film in the Czech Republic.
This relief was introduced in 2010 in an attempt to re-attract foreign film investors who had left the
Czech Republic as a result of lucrative tax rebates that had been introduced in other European
countries, in particular those of neighbouring Hungry.
The support programme is available to feature, TV, animated and documentary films. The FISP is
administrated by the Ministry of Culture, Media and Audio-Visual Department.
The film relief is available to both Czech Republic domestic film producers and also to foreign film
producers who set up a branch in the Czech Republic.
11.3
Scope of Activity Eligible for Relief
Qualifying Producer
Only registered Czech income tax payers with a place of business in the Czech Republic may apply
for the FISP.
International producers may partner with a Czech co-producer (which becomes the applicant) or
establish and apply through a Czech subsidiary.
Eligible Productions
To qualify, projects must pass a cultural test for European cultural and production criteria, which
proves whether the film has artistic qualities.
The Project must score a minimum of 4 points from a maximum of 16 points in Cultural Criteria
and a minimum overall 23 points from a total of 46 points
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Examples of Cultural test conditions are - whether the storyline/screenplay/central theme of the
film are based on events that are a part of Czech or European culture/history/mythology/religion;
whether the film is based on a character/personality from Czech/European culture
history/society/religion
The project has to achieve a minimum spend in the Czech Republic (see below)
Eligible Expenditure
local spend on goods and services paid to companies or individuals registered to pay
income tax in the Czech Republic
For the purposes of this Programme, eligible costs shall also mean remuneration paid by the
applicant to actors and crew members who are foreign nationals or to persons who do not
have permanent residence in the Czech Republic and whose income or revenues are generated
from sources in the Czech Republic and are subject to withholding tax according to a special
rate
Eligible spend is capped at 80% of the total budget
11.4
Operation of Reliefs
Application process - prior to production
The project must pass the cultural test (as outlined above). The applicant must submit the project's
budget and other financial information - responses, including the approved amount of the grant, will
be issued within 30 days.
Timing of rebate claims
Rebates are issued at the end of production upon submission of audited statements of costs incurred.
Rebates are paid out as cash grants.
Projects that qualify can receive a 20% rebate on eligible local spend on goods and services paid to
companies or individuals registered to pay income tax in the Czech Republic.
Projects can also receive a 10% rebate on costs paid to individuals who pay withholding tax in the
Czech Republic but who are not registered to pay income tax – this is to cover payments made to
foreign providers.
Page 62 of 100
11.5
Relief Caps or Restrictions
Caps
To qualify, projects must achieve a minimum spend in the Czech Republic as follows:
(i)
CZK 10m (approximately US$480,000) for each TV episode
(ii) CZK 15m (approximately US$720,000) for theatrical features and TV films
(iii) CZK 3m (approximately US$150,000) for theatrical documentaries
The FISP has a limited annual budget of c€16m and is distributed on a first come basis
Eligible spend is capped at 80% of the total budget.
Restrictions
The following cannot be included among eligible costs:
depreciation of non-current tangible and intangible assets
purchase of non-current tangible and intangible assets
development of the storyline, preliminary negotiations
expenses relating to intellectual property rights associated with the story, basis for story and other
existing works (including music)
financing expenses (e.g. interest on loans)
operating costs of the Applicant that are not exclusively tied to implementing the Project
provisions for exceeding the calculated budget
distribution and marketing costs
travel expenses for the Czech crew and actors while shooting abroad
customs duties
value added tax
wages or any type of remuneration to foreign actors or crew members, except the fees referred to
in section 4 above.
11.6
Summary of Key Aspects of Relief
Limited resources in the fund – budget
€16m annually
There are no caps on the amount a particular project can receive
Support system is styled as a rebate
Support system allows retrospective claims for expenditure incurred
Page 63 of 100
12
12.1
France
Overview of Industry and Support
France is recognised as a leading film and TV production centres with over 200 million film tickets sold
each year and a with record admission receipts in 2011 of €217m. The sector has over 20,000
permanent jobs and over 120,000 freelance jobs.
In its annual results, the Centre National du Cinema et de l'image animee “CNC” reported French film
production had reached record levels in 2011 with 272 feature films approved. Investment in approved
films was €1.39 Billion49 for the year with financing of these films split between French financing of
76.5% and foreign financing 23.5%
The French movie industry receives strong financial support from the State as it is felt that it is in
France’s cultural interest to have a dynamic film industry. The main agency responsible for the film
industry is the CNC (Centre National du Cinema et de l'image Animee).
The CNC determines if a film qualifies for support and if so what type of support to provide by
addressing two fundamental questions:
Are the creators European?
Are they French?
Tax Based Support Initiatives
There are two main tax based supports for the film industry in France (these initiatives are
documented in more detail in Section 3 below)
The Tax Credit for International Productions “TCIP” (more commonly referred to
internationally as “TRIP”) which targets international productions
The systems of SOFICAS (Société pour le Financement du Cinéma et de l’Audiovisuel) which are
special purpose companies which provide tax supported equity funding to the film industry.
Wider Support for the Film Industry
In support of French producers and productions there exist a parallel system of additional supports
which are targeted at domestic French available including the following (these initiatives are
documented in more detail in below)
TV Channel Investment in films and television
49
These exclude films financed by French producers but that could not be categorised as European films and films that did not
seek regulated or Government financing and were still in production
Page 64 of 100
“Avance sur Recettes” – a refundable grant
“Le Compte de Soutien” or “Le Soutien Automatique” – automatic subsidies
These support initiatives were appraised by the European Commission in 2006 as being compliant with
Article 87(1) of the EU Treaty regarding regulations on the distortion of competition and trade
between member states.
TV Channel Investment Requirement:
A unique feature of the French movie industry is that a significant proportion (c33%) of the money
invested in movie production in France comes from TV channels. This is due mainly to the following:
The 3 free-to-air networks have to invest 3.2% of their turnover in pre-buy co-productions of
French qualified movies (with a requirements that 75% of this amount is devoted to French
speaking movies)
The French law also fixes investment obligations for pay TV movie channels. They have to
invest 9% of their turnover in pre-buys of French speaking movies and 12% in European movies.
This specifically derives from the law dated 30 September 1986 and further Ministerial
Decrees, notably the Decree n°2010-747 dated 2 July 2010 which summarises most of the
requirements currently applicable as part of the TV Channel Investment Requirement.
“Avance sur Recettes”:
Initiated in 1959, the regime of “Avance sur Recette” aims at supporting first film productions or
original projects which could not be achieved without public subsidies.
This is the most important French grant and is a refundable grant awarded to around 55 projects every
year chosen at the script stage for their cultural values by a committee of members of the creative
community (producers, directors, distributors, writers, publishers, critics). However only Frenchspeaking (or French regional languages) projects are in principle eligible, except when a foreign
language is needed for the production of (i) fiction movies deriving from opera shows, (ii) documentary
movies according to the subjects, and (iii) animation movies.
In 2011, the total budget for this selective mechanism was €20.3M, and only 5 out of the 49 supported
projects were minority French co-productions.
“Le Compte de Soutien” or “Le Soutien Automatique”:
The French financial support (automatic or selective) to the cinematic industry does not constitute
direct public subsidies, but aims at redistributing to the participants of the industry a portion of the
profits realised during their exploitation. The functioning of this financial support is detailed under the
Ministerial Decree no 99-130 dated 24 February 1999, as further modified.
This financial support is generally recognised as a key component of the French film production
landscape. In practice each qualified movie producer or distributor receives automatic subsidies in
proportion to the film’s success at the French box office, in proportion to sales in video-stores (a
Page 65 of 100
percentage of VHS and DVD sales turnover) and in proportion to TV sales (a percentage of broadcasting
rights sales).
In order to benefit from the financial support, the minimum requirements are as follows:
The company claiming the financial support should be established/incorporated in France
The production companies should have managers, directors or presidents which are (i) French
residents, (ii) residents in a Member State of the European Union, (iii) resident of a State which
participates to the “Transboarder TV European Convention” or to the “European Convention on
the Cinematographic Coproduction of the Council of Europe”. In addition, such company should
not be controlled, directly or indirectly, by an entity or an individual which is not established
within one of the above listed States.
Finally, no financial support would be allocated for the production of (i) pornographic movies
or (ii) films promoting violence.
Additional requirements are needed in order to benefit from the automatic financial support.
Cinemas du Monde:
This is a brand new supportive scheme that emerged from the merging of Fonds Sud and the Support to
Foreign Language Films in 2012.
It is targeted at feature films by foreign authors that are co-produced by a French and foreign company
and the aim is to contribute to the promotion of cultural diversity and present different insights as
well as new sensitivities to a French and global audience.
This aid is managed both by the CNC and the Institut Français (ministry of foreign affairs). Priority will
be given to films co-produced in the official frame of a bilateral co-production treaty. The scheme has
been allocated an annual budget of €5m and allocations will depend on the nature of each project and
amounts granted will range between €100,000 and €250,000.
Regional supports:
A number of local governments (Regions, Départements and Cities have created funds to support movie
& TV production. 22 Regions, 6 Départements and one City (Strasbourg) have so far set up a feature
film and TV drama fund, each one defining its own support policy.
The cultural value of the project is a primary motivator. While some of the regional funds are used to
develop production partnerships with the bordering regions of nearby countries, most of their
investment goes to French-speaking movies or TV dramas.
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12.2
Specific Film Industry Support
Tax Credit for International Productions (TCIP)
TCIP (commonly referred to internationally as “TRIP – Tax Rebate for International Productions”) was
initiated in 2009 and codified (Article 220 quaterdecies) under French tax law. TCIP aims at attracting
more International productions as a reaction to incentives in other neighbouring European countries.
‘France’ and French actors were appearing in many international films, but because of the incentive
schemes offered in other countries, these films were being produced outside of France. Since its
launch in 2009, 39 productions from eight different countries have qualified for credits under TCIP.50
The Tax Credit is calculated at an ad valorem rate of 20 % on the eligible costs of foreign movies and
TV productions shot in France, provided that they comply with a set of requirements. In practice, the
production company can offset the resulting TCIP on his corporate income tax due for the fiscal year
during which the eligible costs have been incurred by such company.
This tax credit is also open to animation and VFX projects made partly or completely by a French
studio. TCIP supports live-action projects with a significant proportion of VFX shots, providing VFX and
post-production are executed mainly in France (minimum eligible spend of €1M).
The Soficas
Soficas are equity funds incorporated in the form of limited companies (société anonyme) subject to
corporate income tax in France. SOFICA’s sole purpose is to invest in both film and TV productions, on
a project by project basis, but most focus on feature films. Their funds come from banks, and private
investors who are looking to shelter income. In many cases there will be a guarantor (often media
companies) who will repay the investors if needed.
Each sofica can invest 20% of its money in foreign-speaking (qualified) co-productions, as long as the
film’s language matches the foreign co-producer’s country’s language.
Soficas generally provide gap/mezzanine funding, providing producers with one of the more expensive
parts of their funding structure. Soficas generally stand behind the distributor(s) in the recoupment
order. Only part of the Soficas money is invested in independent productions.
In 2011, there were thirteen active Sofica’s, which invested €36.4 M in 104 movies. 9 of them were
majority foreign co-productions, mostly from English or Belgian producers.
Note: for the remaining sections of this review of France we have focussed only
on TCIP as it is the main tax based incentive for International productions
50
Film France, 2012
Page 67 of 100
12.3
Scope of Activity Eligible for Relief
Qualifying Producer
To file a TCIP application, a company must meet the following criteria:
Be subject to corporate income tax in France.
Act as Production Services Company (PSC) for the sequences filmed or produced in France
and enter a production services agreement with the foreign producer.
The production services company is defined as “the company that has been contracted by the foreign
production company to manage the physical production”. There is no restriction to the capital mix of
the applicant or its main business.
The company can thus specialize in production services, act as an executive production company in
film & TV or be an animation or VFX studio, a subsidiary of the foreign producer, an ad hoc created
company, etc.
TCIP is nevertheless only granted to the extent that the Production Services Company does not hire
employees in France under a “definite duration contract of employment” (contrat de travail à durée
déterminée), but under a “indefinite duration contract of employment” (contrat de travail à durée
indéterminée), for employment which are deemed permanent.
Eligible Productions
Eligible production types and qualifying expenditure is based on the same principles for live action and
animation with some minor changes to reflect the differing natures of the productions and the business
models of the producers.
Live action:
A live action production can be a film or TV movie that may function alone or as part of a series (i.e.
documentaries, commercials and corporate films are ineligible)
Live action animation projects may be subject to apply to the animation Cultural Test if they
include a strong portion of VFX shots
For live-action projects with a significant proportion of VFX shots qualify providing VFX and postproduction are executed mainly in France - if at least 25% of the shots or an average of two and a
half shots per minute of the film are digitally processed, then producer can apply as an animated
project.
Live action projects must obtain at least 18 points on the rating scale of the Cultural Test,
including 7 out of 18 points in the “dramatic content” block.
Live action projects must shoot at least 5 days in France
Page 68 of 100
Animation:
An animated film or TV movie (that may function alone or as part of a series)
Animated projects must obtain at least 36 points on the rating scale of the Cultural Test, including
9 points in the “dramatic content” block
Video Gaming:
Gaming is not eligible under TCIP. However, support for video gaming is provided though France’s
video game specific tax credit.
This is a unique provisions in Europe (and the one on which the proposed UK scheme has been
modelled) that enables companies to save 20% of eligible video game creation expenditure, subject to
meeting certain qualifying criteria.
The tax credit is awarded by a commission of experts using funds from the Ministry for the Economy,
Finance and Trade and the CNC. On April 25, 2012, the European Commission authorized its renewal
for six years (until December 2017).
Eligible Expenditure
Expenses must be incurred by the French production services company which submits the application
to the CNC. The starting date for considering eligible expenses is the date of receipt of the application
at the CNC TCIP office - with the exception of authors fees on condition that these fees were paid the
same fiscal year as that of the application
The maximum tax credit per project is fixed at €4m and the project must spend a minimum of €1M
on eligible expenditure in France (for TV series, it is possible to aggregate the costs of several episodes
in order to reach the €1M threshold).
Allowable expenditure includes the following:
Gross wages and compensation (including social charges) for French and European authors, actors,
and crew members
Fringes
All technical expenses (rentals and purchases)
Transportation, including international transport of materials and crew, to the extent such
expenses do not qualify as sumptuary expenses
Catering expenses that are incurred for the needs of the production, to the extent such expenses
do not qualify as sumptuary expenses
Expenses relating to a shorter shoot outside of France using the same crew and material (and paid
through the production services company), when the scenario script needs such shoot outside of
France
Depreciation
Page 69 of 100
12.4
Operation of Relief
Application & Approval
The Production Services Company submits their application & documentation to CNC requesting
provisional approval for relief. Applications cannot be submitted until a production services agreement
has been made between the foreign producer and the French company. Once all conditions have been
satisfied the CNC will issue preliminary approval to the PSC allowing it to commence.
Once filming has been completed the PSC submits a final application to the CNC (including copy of
film. The CNC review compliance with eligible criteria and issues final approval.
Timing of Receipt of Tax Credit
Each fiscal year the production accounts have to be prepared and certified by a registered auditor. The
certified accounts, accompanied by the provisional approval are sufficient to make a claim.
The tax credit is in the first instance off-set against the company’s corporate tax liability (if any). If
the amount of the tax credit exceeds the corporate income tax during the fiscal year, the difference
will be paid by the French State – a refundable credit.
The tax credit may be claimed before final approval application i.e. it can be claimed on an annual
basis when filing the company’s tax return if production lasts for more than one year. However, if
final approval is refused, the tax authorities will demand the reimbursement of the tax credit granted.
Monetisation
TCIP is expressly a tax credit which is re-payable to companies on an annual basis as part of their
annual tax returns. Therefore the production company can avail of the relief on its incurred
expenditure, on an annual basis if the production runs over one year.
It is not possible to transfer credits to another company, however legislation allows for the possibility
of realising the value of the tax credit though bank borrowings secured against the value of the tax
credit. This potential is explicitly recognised and referred to in the promotional material for the
French TCIP in which it notes that banks would typically lend up to 80% of the value of the tax credit.
Page 70 of 100
12.5
Relief Caps & Restrictions
Caps:
There is no ‘fund value’ or annual cap on the value of TCIP funding to the TV/film industry as a
whole
In respect of individual projects, there is a maximum allowable relief of €4m
Restrictions:
To qualify, the project must spend a minimum of €1M on eligible expenditure in France
Live action documentaries, commercials and corporate films are not eligible
The project must not be in receipt of any other financial support for production from the CNC
Pornography or films promoting violence are not eligible
Animation documentaries as well as films used for advertising or corporate purposes are not
eligible
Differing reliefs for indigenous/international productions
From a film support perspective there is a clear distinction between the level of reliefs and supports
offered to International film productions and that available to domestically generated projects.
While the majority of the supports provided to the industry are targeted at domestic productions, TCIP
is explicitly targeted at and available to International productions.
12.6
Summary of Key Aspects of Relief
Key Characteristics of French TCIP Incentive Program
The relief is broadly scoped providing support to film, TV and animation productions
While the relief is explicitly a tax credit it is refundable at full value
While the relief is not transferable it can and is used as security in bank lending
There are no caps on the value of the annual relief provided under the scheme, however the
value of the relief to individual productions is capped at €4m
The Headline Numbers51
51
Number of Films Supported 2011
131 productions
Support cap per production
€4m
Number of productions availing of TCIP since inception
39
Value of TCIP Film expenditure 2011
€763m
CNC 2012
Page 71 of 100
13
13.1
Luxembourg
Overview of Film Industry and Support
Despite the fact that Luxembourg is the second smallest member state of the EU and has just 494,000
inhabitants, it has managed to develop a film industry and one which has a slightly different structure
to most other countries.
What is distinctive about the Luxembourg film industry, relative to comparable countries, is the fact
that International co-productions are the main component of the film industry while domestically
generated films are comparatively rare.
Of the films which are not co-productions, the vast majority are documentaries or shorts, with fiction
features amounting to no more than one or two a year.
Direct employment in the industry has been estimated at just 600.
Fonds National de Soutien à la Production Audiovisuelle (FONSPA)
The Film Fund of the Grand-Duchy of Luxembourg (“Film Fund”), otherwise known as Fonds National
de Soutien à la Production Audiovisuelle (FONSPA), was first established in 1990 and restructured in
1999, and exists primarily to promote and foster an environment in which the country’s film production
industry can develop and flourish.
FONSPA, is an official body jointly supervised by the minister responsible for the audiovisual sector and
by the minister responsible for culture and it is responsible for implementing overall government in
respect of support for the audio-visual sector
The annual budget of the Film Fund is c€5.5 million with the funds allocated between script support,
production and distribution. Individually, production accounts for an average of around 90% of the
funds – see AFS below.
The film fund manages the various programs through which the Luxembourg government provides
financial incentives to audiovisual productions. The two support mechanisms for audiovisual
productions carried out by a Luxembourg registered film production company are the
Audiovisual Investment Certificate Program (CIAV)
National Audiovisual Production Support (AFS)
Audiovisual Investment Certificate Program (“CIAV”)
The CIAV is a tax incentive programme that was introduced in 1988 and which was designed to attract
foreign productions. It provides assistance to producers in the form of tax relief to offset a proportion
of production costs incurred in the European Union and preferably on Luxembourg territory.
The system is also designed to enable and encourage the Luxembourgish producer to borrow money
against the certificate he will get in the future
Page 72 of 100
Promotion of the audiovisual sector has resulted in a number of large projects being shot in
Luxembourg and the specialisation of trades, particularly highly skilled technicians. It is widely
accepted by industry professionals that Luxembourg would not have a film industry without state
support that has enabled the creation of CIAV.
The law of June 8, 2007 extended the Audiovisual Investment Certificate Program until 2015.
National Audiovisual Production Support (“AFS”)
This fund is designed to encourage local production. It provides discretionary loans to producers to
finance development, scriptwriting, distribution and production, with such loans being repayable in
principle from the finished work’s receipts.
The fund has a yearly budget of €4.5m and is invested in development, production and distribution
every year. The subsidy provides up to €250,000 in case of a minority co-production, up to €500,000 if
the Luxembourgish producer is the majority producer and up to €1m if the director is Luxembourgish.
Project applications are submitted by the Luxembourgish producer to the Fund's Committee, which
makes a decision after consulting two Committees: the Reading Committee and the Economical &
Financial Committee
13.2
Specific Film Industry Support
Audiovisual Investment Certificate Program (CIAV)
The tax incentive is provided by the Audiovisual Investment Certificate Program and is designed to
attract foreign co-productions to the country by allowing them to write off up to 25% of the production
costs incurred in Luxembourg. The Fund answers to the Ministry of Culture for FONSPA and to the
Office of the Prime Minister of the Grand Duchy for the tax scheme. Its funding comes from both
government departments.
Between €15 and €55 million worth of tax certificates are issued annually, depending on applications.
The scheme has been successful both in establishing an infrastructure which provides full-time
employment for around 600 professionals, and in attracting a number of medium-budget international
productions. It has also resulted in a more vibrant form of national cinema than might have been
expected from a country of Luxembourg’s size.
For indigenous projects, the subsidy (AFS) can be combined with the tax scheme (CIAV) to enable local
producers to work with more realistic budgets.
To obtain an Audiovisual Investment Certificate an applicant company files their application with the
Film Fund. The amount of the certificate is a function of spend i.e. the amount of the certificate
granted may not be more than the financial contributions made by the applicant company and a
function of a points system.
Page 73 of 100
The maximum amount of the certificate is the lower of 25% of the project budget (capped at €2.5m) or
the amount expended by the applicant. Certificates are transferrable on receipt
Recent developments
In 2012, the government decided to abandon the system of CIAV going forward. All films will in the
future only be supported by direct payments (whose budget is increased to compensate for the
absence of CIAV). The amended law will soon be submitted to Parliament.
In May 2012, Luxembourg Communications Minister François Biltgen commented that the current
system to finance films “Made in Luxembourg” had lost its competitiveness. He said that few
organisations were in practice taking advantage of the “Certificats d'investissement audiovisuel” which
allow tax deductions on the film's earnings.
Luxembourg banks had been the main organisations who took advantage of the CIAV using it to reduce
their corporate tax liabilities. However, with profits in this sector no longer certain and the
unavailability of carry forward of relief, banks are no longer willing to buy CIAVs unless it is clear that
they will have sufficient taxable profits that can be offset.
In the future, the minister has stated that he envisages only direct funding through a 20 million euro
budget. Minister Biltgen has also stated that he wants a transparent system for assessing projects
applying for funding, so that tax payers can see where their money goes.
13.3
Scope of Activity Eligible for Relief
Qualifying Producer
In order to be eligible to claim an Audiovisual Investment Certificate producers must meet certain
requirements:
Applicants can only be a limited company or co-operative
These qualifying entities need to be resident in Luxembourg and fully taxable there
The rights need to be partially owned by the Co-producer from Luxembourg
Eligible Productions
The final responsibility for funding decisions lies with the Film Fund's Administrative Council, which is
made up of civil servants, representatives from the Fund, and one outside industry professional. Initial
recommendations (as in neighbouring Belgium) are made by a reading panel, which assesses both the
cultural and financial suitability of the projects.
Other conditions include:
the work must be carried out in the EU but preferably on Luxembourg territory
the production must offer the prospect of a reasonable return on investment
it must contribute to the development of the audiovisual sector in Luxembourg
Page 74 of 100
Eligible expenditure
Article 5 of Grand Ducal Reg July 4 2007 establishes certain parameters and limits for eligible
expenditure. These include the provision that:
The emoluments of producers and co-producers can represent at least 10% of the base.
However, the emoluments of the producers of the applicant company cannot exceed 10% of
the Luxembourg share of funding
The overhead costs of the applicant company cannot exceed 7.5% of the Luxembourg share of
funding.
Taken together, development costs and the cost of key staff (producer, director, writer, lead
actors) can represent up to 30% of the allowable cost
Luxembourg share of funding means the total funding provided by the applicant company.
The value of the certificate is calculated by reference to points on a grid. The amount of the relief
granted can vary between 12.5% and 25% depending on the number of points achieved:
if the film reaches 100 points out of 210, the certificate will amount to 100% of the 25% of the
total budget with a net maximum of €2.5m per film
if the film has only 50 points, the certificate will amount to 50% of 25% of the total budget.
The minimum points required is 50 for films but there is no minimum points requirement for
animation films
An example of the percentage of total budget allowable under different point categories is as follows:
Table 33 Allowable Budget by Production Type
No of Points
Film, TV
Animation
100 Points
25%
25%
50 points
12.5% (50% of 25%)
25%
<50 points
0%
25%
Page 75 of 100
13.4
Operation of Relief
Approvals
As far as procedure is concerned, the Luxembourgish producer submits an application form to the
"CIAV" Committee which analyses it and, should it give its approval, issues a letter of intent.
The Committee analyse the project on the basis of its long-term economic, cultural and social effects
for Luxembourg and decide whether or not to approve the project.
The Luxembourgish producer must prove that the governmental subsidy enabled him to acquire a
percentage of rights of the production that equals at least the percentage represented by the net CIAV
value with regard to the total production budget.
Timing of Relief
The investment certificate is issued only when works have been completed and in accordance with the
application filed.
Upon filing of the annual corporate tax return, holders of these certificates obtain a tax credit
amounting to 30% of the nominal value of the certificate, as a deduction from the corporate income
tax payable. The tax credit is limited to a maximum of 30% of the taxpayer’s taxable income.
A certificate is nominal and only claimable in a single block at one time – i.e. it cannot be claimed in
parts.
Monetisation of Tax Credit
The certificates are issued to producers to reduce the amount of corporate tax payable of their
company. If the holder of the certificate has in-sufficient tax due to allow for the credit to be fully
used, the remainder of the tax credit may not be refunded or deferred.
Transferable: However, if production companies have insufficient profits they can opt to sell these
certificates to other companies who can also use them to reduce their taxable income. In the past this
secondary industry was supported by profitable organisations, in particular the Luxembourg banks such
as Dexia and KBL. However, with continued economic and financial uncertainty in the banking sector,
banks are no longer willing to buy CIAVs unless it is clear that they will have sufficient taxable profits
and corporate tax liabilities that can be offset. A significant issue with the CIAV is that the tax credit
has to be used the year of issuance and If a corporation buys a CIAV but has no corporate tax to pay for
that year the tax credit is lost.
Borrowing: The CIAV system also enables the Luxembourgish producer to borrow money on foot of the
future certificate they are due to receive i.e. up to 25% of the total production budget
Page 76 of 100
Value of Reliefs
(i)
If Profitable
The amount of the Allowable CIAV certificate is nominal and the value of certificate
depends on the allowable expenditure (as outlined above)
A tax credit of amounting to 30% of value of certification is granted
(ii)
= 30%
If insufficient profits and/or loss making
most production companies will fall into this category
Transfer value – secondary market +/-28% = transfer value of 72%
Effective support calculated at 30% x 72%
13.5
= 21.6%
Relief Caps & Restrictions
Caps
There is no annual cap on the total value of support that is available from the CIAV programme
The amount of relief that is allowable on a single project is capped at €2.5m
Restrictions
The tax scheme excludes works deemed to be pornographic, works inciting violence or racism,
praising crimes against humanity and/or lacking in social merit
Also excluded are productions which are making advertising material and productions involving
news, current affairs and sport.
13.6
Summary of Key Aspects of Relief
The relief is currently being restructured and will be replaced in the future by a direct
funding model with a program budget of €20m
Currently, the relief is given by way of tax credit and is not payable by way of refund
The amount per project is capped at €2.5m
The relief is transferrable but not refundable or deferrable
Relief has to be claimed in one go
The certificate which allows for claim of the tax credit is issued at the end of production
the allowable production work may be carried out in the EU
Page 77 of 100
14
14.1
New Zealand
Overview of Industry and Support
Facilitated by a supportive government grant regime and a natural environment which provides a wide
range of location options, New Zealand has become a major base for film production in recent years.
Tax free grants are provided at national level to eligible film, TV and visual effects productions.
Major studio productions have used New Zealand as a base for films such as Avatar, the Lord of the
Rings trilogy and the forthcoming Hobbit films.
Since 2008, the gross revenue of the screen industry as a whole has increased year on year, from
NZ$2,734m in 2008, NZ$2,873 in 2010 and NZ$2,999m in 2011.
The New Zealand screen industry recorded gross revenues of $2,999m for the year ended March 2011.
This represents a small increase of 4% on the previous year, with production and post-production
remaining the largest sectors.
Table 34 NZ Film & TV Industry - Key Facts & Figures
Gross Revenue of Screen Industry
2011
2010
Production / Post Production
NZ$1,403m
NZ$1,366m
TV Broadcasting
NZ$1,248m
NZ$1,168m
Film & Video Distribution
NZ$186m
NZ$186m
Film Exhibition
NZ$162m
NZ$153m
NZ$2,999m
NZ$2,873m
Total
Source: Statistics New Zealand
More recently, as per a recent advisory report 52, it was estimated that across the economy in 2011, the
New Zealand film and television industry has gross output of NZ$3,233m with a contributed total value
added of NZ$2,781m. It has also supported in the region of 21,315 full-time equivalent jobs.
Of the NZ$3,233m of gross output, it is estimated that approximately $700m can be directly related to
feature films (there were 35 completed in 2011) – production and post-production53.
The New Zealand film industry is now contributing almost 1.4% of total GDP which can be compared to
the total contribution of 0.7% for the country’s wine industry. In terms of support for the production
industry in New Zealand, there are numerous tax free national grants available to attract film
production in the country.
52
Economic contribution of the New Zealand film and television industry, PWC, 2012.
53
Statistics New Zealand, Screen Industry Survey 2010/11.
Page 78 of 100
14.2
Specific Film Industry Support
The New Zealand film industry has supports in place to assist both international and domestic film
production. These supports are all considered grants and are not tax rebates or reliefs.
Film Industry Support for International Productions
The main supports for the international production are the Large Budget Screen Production Grant
and the Post Digital and Visual Effects Grant. The Screen Production Incentive Fund can also be
utilised for international productions, however due to a significant cultural test it has been
considered as domestic support.
Large Budget Screen Production Grant
The Large Budget Screen Production Grant provides a tax exempt grant of 15% on Qualifying New
Zealand Production Expenditure (QNZPE).
Post Digital and Visual Effects Grant
The Post Digital and Visual Effects Grant (PDVG) provide a tax exempt grant of up to 15% of
Qualifying New Zealand Production Expenditure (QNZPE).
Some of the key features of the international support grants are as follows:
Table 35 Key Features of NZ Film Supports for International Productions
Large Budget Screen Production Grant
Post Digital and Visual Effects Grant
Provides a grant on Qualifying New Zealand
Projects not filmed in NZ but interested in NZ
Production Expenditure (QNZPE)
using its post- production facilities can claim
15% grant on feature films, television movie,
up to 15%
television drama or mini series
Between $3m and $15m QNZPE
Goods or services provided in NZ and includes
expenditure for the use of land in NZ
Minimum films - $15m, TV - $500,000 per
commercial hour may be bundled to achieve
$15m
Page 79 of 100
Film Industry Support for Domestic Productions
The main supports for domestic film production are the Screen Production Incentive Fund and the
New Zealand Film Commission. The Screen Production Incentive Fund can also be utilised for
international productions, but due to a significant cultural test it has been considered as domestic
support. Both of these supports are quite limited in their monetary support.
Table 36 Key Features of NZ Film Supports for Domestic Productions
Screen Production Incentive Fund
New Zealand Film Commission
Grant funding of up to 40% of QNZPE
Provide some financial assistance by way of loans
Film, television, documentaries short form
and equity for development costs
animation eligible
Investment budget allocation of approximately
Minimum levels of expenditure
$13m
Funding capped
Screen Production Incentive Fund (SPIF)
The Screen Production Incentive Fund (SPIF) was established in 2008 and is administered by the NZFC.
The SPIF is a grant (payable three months post submission) and cannot be used in conjunction with
other federal reliefs, and is targeted at domestic production of film, television, single episode
programming, documentary series, and short form animation with significant New Zealand content.
The New Zealand Government budgeted $68.5m in July 2008 for five years of funding for SPIF and also
some further funding for co-investment with the NZFC. Despite targeting domestic productions,
international productions which are official co-productions will qualify for this support
New Zealand Film Commission (NZFC)
The New Zealand Film Commission (NZFC) has the statutory responsibility "to encourage, participate
and assist in the making, promotion, distribution and exhibition of films" made in New Zealand by
New Zealanders on New Zealand subjects54. The NZFC provides broad financial assistance for
development costs including loans and equity financing to film producers. The NZFC also assists in the
sales and marketing of New Zealand films and with training and development within the industry.
The NZFC aims to invest in at least four feature films (including larger budget), up to four low
budget features (Escalator scheme) and 22 short films every year
The NZFC is financed by the New Zealand Government (32%) and from the Lottery Grant Board
profits (66%) with the remainder sourced from film earnings and interest 55.
The NZFC has budgeted to invest $10.7m for the production of feature films, $1.03m for the
production of short films and $1.45m for the promotion of the industry
Films usually fall within a budget of $1m to $5m, with individual investment of $150k
54
New Zealand Film Commission website
55
New Zealand Film Commission
Page 80 of 100
The NZFC has various funds which are accessible to production companies at various stages. The
main smaller funds associated with the NZFC are:
The Seed Development Fund (SDF)
The Early Development Fund (EDF)
The Advanced Development Fund (ADF)
The CEO Delegation (CEOD)
Other – NZ on Air
In terms of other funding sources, NZ on Air provides almost $80m56 in contestable funding available to
television producers for free to air broadcasting in New Zealand.
14.3
Scope of Activity Eligible for Relief
Film Industry Support for International Productions
The following tables sets out the key qualifying criteria under each grant:
Large Budget Screen Production Grant
Post Digital and Visual Effects Grant
Qualifying
Company should be New Zealand
New Zealand resident company or a
producer
resident company or foreign company
foreign company with a fixed
with a fixed establishment in New
establishment in New Zealand for the
Zealand for the purposes of lodging an
purpose of lodging an income tax return
income tax return
Production company must file an
application within 3 months of film
completion or once the qualifying
expenditure has exceeded $50m
Eligible
Screen production must be a feature
Projects not filmed in New Zealand but
Productions
film, television movie, television drama
interested in using its post-production
or mini-series.
facilities can claim the PDVG
Eligible
QNZPE on goods or services provided in
QNZPE on goods or services provided in
Expenditure
New Zealand and includes expenditure
New Zealand and includes expenditure
for the use of land in New Zealand
for the use of land in New Zealand
Additional grant of $9.75m for QNZPE of
over $200m with relative restrictions
Monetisation
Production company files a grant
of Relief
application once the qualifying
expenditure has exceeded $50m or
within 3 months of film completion
56
Film Financing and Television Programming, KPMG, 2011
Page 81 of 100
Film Support for Domestic Productions - Screen Production Incentive Fund - “SPIF”
The following tables sets out the key qualifying criteria under the SPIF grant:
Screen Production Incentive Fund
Qualifying
In order to qualify for the SPIF, the production company should be a New Zealand
Producer
resident company or a foreign company with a fixed establishment in New Zealand for
the purpose of lodging tax returns.
Eligible
Film, television, documentaries short form animation are eligible
Production
Eligible
QNZPE on goods or services provided in New Zealand and includes expenditure for the
Expenditure
use of land in New Zealand
40% of Qualifying New Zealand Production Expenditure (QNZPE) for feature films
20% for other screen formats
14.4
Relief Caps or Restrictions
Caps
There are no caps in relation to funding that can be received through the Large Budget Screen
Production Grant.
There are no caps in relation to the grant that can be received for the Post Digital and Visual
Effects Grant
Maximum grant of $6m per individual project for the SPIF
Restrictions
There are minimum thresholds of expenditure for eligibility under each production category which are
outlined below.
International – Large Budget
International - Post Digital and
Domestic - Screen Production
Screen Production Grant
Visual Effects Grant
Incentive Fund
Film – minimum of $15m to
QNZPE must be between $3m
Minimum NZQPE - $2.5m – feature
qualify, or $30m where grants
and $15m and must be spent
film, $1m for a series / single episode,
are being bundled after
on the specified post digital
$250,000 for a documentary or
fulfilling certain criteria
and visual effects work –
animation
Television – Individual
under relative PDVG
There is a significant cultural test
episodes minimum of $500k
specifications.
requirement for funding under SPIF
per commercial hour
There is currently a
with high levels New Zealand content
consultancy process in
required within the production.
relation to getting the
Feature films require 20 / 31 points
minimum QNZPE reduced
and television 15/31 on this cultural
test.
Page 82 of 100
14.5
Summary of Key Aspects of Relief
Key Characteristics of NZ Film Incentive Program
The film support scheme for international productions in NZ is grant based rather than tax
based
The relief targets the entertainment industry (Film, TV and animation) with a single relief
scheme
A narrowly targeted relief for visual effects has been introduced
The relief is structured so as to favour very large value productions
All expenditure including above the line is included for the grant
There are no caps on the value of the relief provided
The Headline Numbers
Cost of relief in 2011(Production)
$234m
Number of Films Supported 2011
35 productions
Value of NZ Film expenditure 2011
$3bn
Value of grants since 2007
$1.1bn
Page 83 of 100
15
15.1
USA - State of Connecticut
Overview of Film Industry and Support
Frome July 2006, when the state introduced its first tax incentive program for film production,
Connecticut has become a major destination for film and TV production location and is increasingly
becoming a focus for the digital media industry.
Since the inception of the tax incentive program for film productions in Connecticut , over 150
production companies have filmed movies, commercials, television shows and documentaries, spending
more than $500 million in the state.57
The state of Connecticut has shown itself to be fully committed to keeping abreast of developments in
the film industry and each year since the incentive program was introduced, it has evolved and
changed to reflect changing circumstance. Amongst the most important of these changes have been:
the expansion in the scope of activity to include digital media
the expansion in the scope of activity to include interactive website etc.
the restrictions in respect of the assignment of tax credits
the restrictions in respect of the eligibility of out of state costs
the restrictions in respect of the % of taxable income that a purchaser of tax credits can
shelter in any one period
changes to threshold spend rates to be eligible for relief
the introduction of sliding rates of relief to favour larger productions
the new targeted credit for animation
the new targeted credit for film infrastructure
While the tax credit program has been recognised as being the basis for the strong growth of in-state
film, television, and digital media production taking place it is accepted that further efforts are
required to fully establish and embed the industry in the state and to move to a full-time, professional
workforce to support the industry.
57
Connecticut Film & Digital Media Workforce
Page 84 of 100
15.2
Specific Relief Industry Support
Digital Media & Motion Picture Tax Credit
The Digital Media & Motion Picture Tax Credit scheme established a corporation and insurance
premium tax credit for eligible companies that produce qualified films or other types of television,
video, or digital media entertainment content in Connecticut.
As with the digital animation credit, the film production tax credit Digital Media & Motion Picture Tax
Credit is offered on a sliding scale from 10% to 30% based on the level of eligible expenditure incurred.
The scale is as follows:
$100,000 up to $500,000
credit is 10%
$500,000 up to $1 million
credit is 15%
over $1million
credit is 30%
In addition to the minimum expenditure requirements, in order to qualify for the credit the
production company mustconduct at least 50% of its principal photography days in the state or
spend at least 50% of a film's post-production costs in the state or expend not less than $1
million in post-production costs in the state.
Broader System of Entertainment Tax Credits
The Connecticut Film and Digital Media incentive is part of a broader suite of incentives which have
been designed to complement the Film & Digital Media Production benefit and to support the growth
of Entertainment Industry related activities (production and asset investment) in the state.
Chief amongst the wider reliefs are those in respect of Film Infrastructure Investment and Digital
Animation Production which operate in broadly the same ways as those for film (they are transferable
but not refundable and they operate on a sliding scale).
Film Infrastructure Investment Credit:
This is a separate and transferable tax credit (against corporation and insurance premium taxes) for
investments in capital projects for basic buildings, facilities or installations that the film and digital
media industry requires to function in Connecticut
As with the film production and animation tax credits, the Infrastructure Investment Credit had been
offered on a tiered basis (from 10% to 30%) but this has now reverted to a straight 20% for projects
costing more than $3m.
Eligible expenses include those necessary for the different stages of the production cycle
(development, production, pre- and post-production, and distribution) across film, video, television,
digital production or digital animation. It includes money spent on capital projects and necessary
equipment for leased or purchased buildings, fixtures or facilities.
Page 85 of 100
A company looking to avail of this credit must satisfy a number of basic criteria. To qualify, a company
mustcomply with DECD regulations
be authorized to do business in Connecticut
must not default on any Connecticut state loan/loan guarantee or have any obligation to repay
public funds discharged because of bankruptcy
be approved for an infrastructure credit by DECD.
The Digital Animation Production Credit:
This is a separate and transferable tax credit for digital animation production activity and it cannot be
availed of a by a company which receives a film production credit. Animation production is defined as
creating, developing, and producing computer-generated animation content for public distribution and
exhibition.
As with the film production credit, it applies against Connecticut corporation and insurance premium
taxes and the annual cap on this relief is set at $15million.
As with the film production tax credit, the digital animation credit is offered on a sliding scale
from 10% to 30% based on the level of eligible expenditure incurred. The scale is as follows:
$100,000 up to $500,000
credit is 10%
$500,000 up to $1 million
credit is 15%
over $1million
credit is 30%
A number of conditions are required to be met in order to avail of this credit. To qualify, a company
mustbe exclusively engaged in the production activity
maintain a studio in Connecticut
employ at least 200 full-time employees (permanent, non-seasonal employees who work at
least 35 hours a week)
be certified by the Department of Economic and Community Development (DECD) and comply
with its regulations.
The digital animation credit follows the same application/transfer/post-certification requirements as
the film production credit with the following exceptionsIt makes intellectual property purchase expenses eligible for a credit, if they are less than 35%
of the digital animation production company's expenses or costs in any income year.
It makes expenses for the following additional types of costs explicitly eligible: actors, voice
talent, rent, utilities, insurance, administrative and systems support and short film production
& distribution.
A digital animation company can apply for credit vouchers only twice during the company's
income year.
Page 86 of 100
15.3
Operation of Reliefs
Process for Availing of Relief:
The process of securing tax credits is a two stage process for eligible production companies – obtaining
an eligibility certificate and applying for the credit once production costs in the state have ceased.
The application for an eligibility certificate must be made no later than ninety (90) days after the first
qualified production expense or cost is incurred in Connecticut on a qualified production. The
eligibility certificate certifies that the production company is eligible to earn the tax credits.
The second step of the process begins when the eligible production company applies for a tax credit
voucher no later than ninety (90) days after the last production expense is incurred in the state.
At this time, the eligible production company must submit a cost certification of its eligible production
expenses. After this is verified, a tax credit certificate is issued. An eligible production company is not
entitled to claim tax credits before the production tax credit certificate is issued.
Monetisation of Reliefs:
The Digital Media & Motion Picture Tax Credit is not as flexible as that in some other states given that,
while the funds are transferable/assignable, they are not refundable. As such the value of the tax
credit provided by the Stats of Connecticut can be realised in two main ways•
it can be claimed as a tax credit in computing taxable profits (tax credit)
•
the credit can be transferred/assigned to another party who can avail of it
Tax Credit: In most cases the Film Productions are structured so as to limit their exposure to state tax
and for this reason the majority of the productions cannot avail of the full value of any tax credit.
Under Connecticut regulations any un-used credit can only be carried forward for three taxable years
Transfer: Unlike in other states, there are strict regulations and limitations regarding the transfer of
tax credits. These include a limit on the number of transfers in respect of each credit (3) and a
requirement for the details of the named vendor/purchaser to be notified to authorities within 30
days. In addition, since Jan 2012, a production company may not transfer more than 25% of their tax
credits in one year unless the production was made in significant part at a ‘qualified production
facility’58.
58
http://ct.gov/ecd/lib/ecd/Tax_Incentive_Updates_6_28_11__2_.pdf
Page 87 of 100
Value of Reliefs
The Only way in which the full face value (30% of qualifying expenditure) of the reliefs is realised is
where a qualifying entity avails of the full value of the credit against their Connecticut State Tax
obligations.
In 2010 it was reported59 that only 9 of 80 productions which had been granted the tax credit up to
that point had applied them against state taxes. Given this focus on assigning the credit, the net value
of reliefs to the production companies may be considerably less in practice.
Table 37 Maximum Value of Relief Provided (as a % of qualifying expenditure)
Digital Media &
Film Infrastructure
Digital Animation
30%
20%
30%
25.5%
17%
25.5%
Motion Pic.
Use full value of credit (at
top point in the scale)
Sell credits to broker
(assume 85c/dollar)
Timing of Payment of Relief:
The tax credits must be claimed against the corporation business tax or insurance premium tax for the
taxable year in which final certification for the qualified production is made. Since Jan 2010, interim
tax credits are no longer available to claim in Connecticut.
Where a production company assigns their credits to an ‘agent’, they usually only receive payment
when the agent completes the onward sale to the taxpayer who is going to avail of the credit.
59
CT Post - State's film tax credits a boon to brokers
Page 88 of 100
15.4
Scope of Activity Eligible for Relief
Qualifying Production Company – Digital Media & Motion Picture Tax Credit
A broad range of production company configurations are eligible for the movie and digital media
production credit. Qualifying companies can be established as a corporation, partnership, limited
liability company or any other type of business entity in the business of making qualified productions.
The only other proviso is that the company must be authorized by the secretary of the state to do
business in Connecticut.
Qualifying Productions - Digital Media & Motion Picture Tax Credit
Only qualified productions which are produced by certified companies are eligible for a tax credit. A
‘qualifying production’ is very broadly defined with a number of specific exceptions.
Qualifying productions
Non-Qualifying Productions
movies, documentaries, long-form
on-going television programs created primarily as
specials, mini-series, series
news, weather, or financial market reports
certain sound recordings,
current or sporting events
videos and music videos
award shows and other gala events
television programming including
productions whose sole purpose is fundraising
interactive television or games
long-form productions that primarily market a
interstitials (short programs aired during
product or service
longer ones or programmes that serve as
productions used for corporate training or in-house
bridges between two longer programs
corporate advertising or similar productions and
videogames
productions containing obscene material or
commercials
performances on which, by federal law, producers
interactive websites with production
must keep certain records
costs of over $500k annually
Sound recording not eligible if recorded as part of a
Trailers, pilots, video teasers, and demos
movie, video, theatrical production, TV news
for a product (as long as they created
coverage, or athletic event.
primarily to stimulate its sale,
Websites used primarily for institutional, industrial,
marketing, or promotion, or to exploit
retail, wholesale marketing, or promotional
future
purposes, or those that are obscene
Page 89 of 100
Qualifying Expenditure - Digital Media & Motion Picture Tax Credit
Qualifying Expenditure is defined as costs which are clearly and evidently incurred in Connecticut for
development, pre-production, production, and post-production work associated with a qualifying
production
Qualifying Expenditure
Non-Qualifying Expenditure
production and post-production work,
Expenditures for goods or services incurred outside
equipment, and software
Connecticut but used within the state (prior to Jan
production equipment ineligible for the
2010 such costs were eligible at 50%)
infrastructure tax credit
compensation over $20 million, subject to Connecticut
set design and construction
income tax, paid for all-star talent featured in the
props, lighting, wardrobe, makeup, and
production
makeup accessories
Costs for media buys, promotional events, gifts, or
special, visual, and audio effects
public relations associated with promoting or
film processing
marketing a production
music, sound mixing, and editing
Deferred or profit participation costs for people
location fees
associated with a production, such as producer,
soundstages
director, talent, and writer fees
production or pre- or post-production costs
Cost of transferring the tax credits
for creating trailers etc.
Costs related to an independent audit of film or digital
Some distribution costs
media production project costs
15.5
Relief Caps or Restrictions
Caps:
There is no capping on the level of tax relief which can be provided in a given year –
There is no cap on the value of the reliefs that will be provided to a single production subject to
the restrictions listed below
Main Restrictions as regards relief:
Relief is only granted in respect of productions where the threshold expenditure of $100k has been
reached
The production company must conduct at least 50% of its principal photography days in the state or
spend at least 50% of a film's post-production costs in the state.
Expenditure on payroll over $20 million to star talent which is subject to Connecticut income tax,
is ineligible
Non-Connecticut expenditure does not qualify
While assignable, tax credits are not refundable
Page 90 of 100
Differing reliefs for indigenous/international productions
From a taxation perspective, there is no explicit distinction between the level of reliefs offered to
projects originating from outside Connecticut and those offered to domestically generated projects.
The key determinant of the size and the value of the relief is the quantum of the qualifying
expenditure (point in the scale) and the manner in which the relief is availed of (tax credit, assigned
to broker).
15.6
Summary of Key Aspects of Relief
Key Characteristics of Connecticut Digital Media & Motion Picture Credit
The original Film Production credit has evolved constantly to encompass a much broader
definition of qualifying activities under the guise of “Digital Media & Motion Pictures”
Qualifying productions are very broadly defined right now and include a wide range of eligible
production types not relived under tax relief schemes in other countries
Each of the reliefs are structured to progressively favour larger productions
New restrictions introduced in 2012 which limit the value of tax credits that a production
company can assign in a given year (25%)
While assignable, the ability to transfer the relief is regulated and the relief is not refundable
While on the surface, the relief appears to be a corporate tax credit programme for the film
industry – the relief system depends on a secondary market for assignable credits which in
Connecticut comes largely from the Insurance industry.
There are no caps on the value of the relief provided
The Headline Numbers
60
Cost of relief since 200660
$169m
Number of Films Supported since 2006
150 productions
Value of Connecticut Film expenditure 2011
$500m
TV, Digital Studios Flock To Gold Coast As Tax Strategy Pays Off – Hartford Courant 2011
Page 91 of 100
16
16.1
USA - State of Louisiana
Overview of Film Industry and Support
In 2002, Louisiana followed the lead of Canada and became one of the first US states to introduce tax
incentives targeted at the film industry. Since then, the state has become a leading location for film
and television production with more than 300 feature films produced in the state.61
During a period of broader retraction in the industry, the number of TV and film productions in
Louisiana (facilitated by the tax-breaks), increased threefold from 33 per year in 2002-2007 to an
average of 92 per cent annually in 2008-2010.
In 2011, productions numbered almost 150 and these productions generated circa $1.3 billion of
investment in the Louisiana state economy 62.
Accompanying the increase in the volume of productions has been a corresponding increase in the total
skilled employment in the sector (up 400 per cent since the start of relief scheme) and major
development in film production including purpose built studios, stages and post-production facilities.
This, it is argued, has created a positive feed-back loop whereby the tax credits attract the
productions and the talent, which creates the demand for the production infrastructure which creates
an environment attractive for filmmakers and producers.
Support for the Film Industry through the Louisiana Motion Picture Tax Incentive is one of a number of
incentives which support the production of a broad range of complimentary ‘Entertainment’ related
activities in Louisiana.
These incentives operate in largely the same way as those for film, providing a base level of relief for
expenditure and then, in many cases, an add-on for expenditure of Louisiana resident payroll
61
Louisiana Economic Development
62
Louisiana Economic Development
Page 92 of 100
16.2
Tax Relief for the Film Industry
Louisiana Motion Picture Tax Incentive Act
Louisiana was one of the first states to enact a film tax credit arrangement to provide tax incentives to
out of state producers who make movie, film and entertainment projects in the state.
On July 1, 2002, the Louisiana Legislature enacted the Louisiana Motion Picture Tax Incentive Act
providing tax relief to qualified motion picture expenditure by way of a credit. Since its introduction,
the film credit has been updated and expanded on a number of occasions to reflect changing industry
make-up and changing industry dynamics
This tax credit has two primary components.
•
Investor Tax Credit provides a 30% tax credit on qualified motion picture expenditures
with no project or program cap. These incentives can be used to offset production costs or
to position Louisiana as an attractive base for Film production.
•
Labour Tax Credit provides a 5% credit for payroll expenditures on Louisiana residents.
This program not only encourages residents to film in Louisiana but also employ Louisiana
residents.
Tax Credit Review and 2012 Tax Commission
In 2008, the incentives arrived at their ‘sunset’ date at which point the state was legally required to
review the provision of reliefs. Despite conflicting views as regards the impact of the measures, the
support was granted permanent status and in 2009 the rate of the investor relief was increased from
25-30%.
Advocates of the relief point to the visible success of the film industry in Louisiana and to a 2011
Report from BaxStarr Consulting63, commissioned by the Louisiana Economic Development, which
reported that upwards of 64% of the average budget of supported productions is now being spent in
Louisiana.
By contrast, in 2012 a detailed report 64 was prepared on the operation and cost of the scheme which
questioned the net benefit of the tax credit to the state. While criticising the value and structure of
the relief, the report recognised the political attachment and broader societal support for the relief
and focussed its recommendations on improving the efficiency of the relief rather than advocating its
outright removal.
In the summer of 2012 a Tax commission was established to look at over 400 tax credits and
exemptions that form part of the state tax code including the Motion Picture Tax Credit. In particular,
they are charged with agreeing a common basis for assessing the cost/benefit of credits, ear-marking
credits which are past their sell-by date and recommending changes to continuing credits.
63
FISCAL & ECONOMIC IMPACT ANALYSIS OF LOUISIANA’S ENTERTAINMENT INCENTIVES – BaxStarr Consulting, 2011
64
Louisiana Film Tax Credits: Costly Giveaways to Hollywood – Louisiana Budget Project, 2012
Page 93 of 100
Despite the movement in other states to restrict generous film reliefs, there does not appear to be a
similar appetite as part of this process to limit film relief in Louisiana.
Broader System of Entertainment Tax Credits Incentive Act
The Louisiana Motion Picture Tax Incentive is just one of a number of incentives which support the
production of Entrainment Industry related activities in Louisiana. These incentives operate in broadly
the same way as those for film, providing a base level of relief for expenditure and then in many cases
an add-on for expenditure of Louisiana resident payroll. In addition, some of these credits have ‘sunset
provisions’ with set expiry dates.
Digital Interactive Media and Software Development
The Digital Interactive Media and Software Development offers a tax credit that can be sold or applied
against Louisiana tax liability. The basic support is in respect of qualified production expenditures for
state-certified ‘digital interactive productions’ and amounts to a 25% refundable credit. An
additional 10% relief is provided in respect of expenditure on payroll of Louisiana residents and there is
no annual cap on reliefs provided under this system.
The incentive is open to firms in the digital media and software industry that develop products
including video games, enterprise software and mobile applications. Excluded from this relief are firms
whose software is being developed for any of the following reasonssoftware developed for institutional, private or internal purpose
largely static Internet sites designed to provide information about a person, business, company
or firm.
software in respect of activities which are regulated under the Louisiana Gaming Control Law
(i.e. gambling software or digital media)
Musical and Theatrical Production Tax Incentive
The Musical and Theatrical Production Tax Incentive offers a tax credit that can be sold or applied
against Louisiana tax liability.
The basic support is in respect of expenditure on live performance production and infrastructure
(sliding scale from 10% to 25% incentivises large productions) and additional 10% relief is provided in
respect of expenditure on payroll of Louisiana residents
The tax credits require a minimum spend of $100k and the level of relief is capped at $10 million per
project and are also subject to a $60 million annual cap.
Page 94 of 100
Sound Recording Investor Tax Credit program
The Sound Recording Investor Tax Credit program offers a tax credit that can be sold or applied against
Louisiana tax liability. The basic support is in respect of qualified production expenditures for statecertified sound recording projects and amounts to a 25% refundable credit.
The relief has been designed both to boost recorded music production ( by reducing the cost of making
new master music recordings) and to tap into the growth in the film industry in Louisiana by developing
the film scoring sector of the business in conjunction with the music supervisors for the big studios.
16.3
Scope of Activity Eligible for Relief
Qualifying Productions
As previously indicated the productions that can avail of the relief are broadly defined and include:
documentaries, feature films, TV Pilots, TV Series, Webisodes, Animated Features or Television and
Experimental Shorts – all subject to the minimum threshold spend of $300k.
The types of production which cannot avail of the relief include: Reality Shows, Industrial Videos,
Commercials, Tourism Videos, Political Campaigns or Promotional Pieces.
Expenditure associated with each stage of the production cycle (pre-production, production, & postproduction) all qualify provided the costs are directly incurred in Louisiana and used in a statecertified production.
Qualifying Expenditure
The Investor Credit is based on qualified Louisiana Production Expenditure while the Labour Credit is
based on qualified Louisiana Resident Labour Expenditure
Louisiana production expenditure: Services will qualify if performed in Louisiana. Goods will qualify
if purchased through a source in Louisiana. Additionally, if a good is obtained through a production
services company, there must be a mark-up on the price and state sales and/or tax charged to the
production. The 30% credit includes the entire spend on payroll (above and below the line) regardless
of where the cast or crew are domiciled.
Ineligible production costs include equipment purchases, development of infrastructure/new
facilities and hospitality/entertainment costs.
In Oct 2011, the Louisiana Office of Entertainment Industry Development issued a memo saying the
state will no longer pay tax credits for related-party financing fees and they placed a cap on the
percentage of above the line costs (fees to producer, executive producer, director, lead actors
etc.). This cap has been set as the lower of 12% of total Louisiana production expenditures or $3
million.
Page 95 of 100
Louisiana resident labour expenditure: This is expenditure on payroll for Louisiana residents
employed in connection with a state-certified production and includes all salary, wages and other
compensation including related benefits sourced or apportioned to Louisiana. This additional 5% credit
excludes expenditure of over $1m on any single resident of Louisiana.
16.4
Operation of Reliefs
Process of applying for the credit
Producers complete the Motion Picture Production Application and submit it to the Office of Industry
Development. The following additional elements are also required:
Application fee (minimum: $200/maximum: $5,000): Fee is assessed as 0.2% of the total
amount of tax credits for which the production qualified
Detailed preliminary budget
National multimarket distribution plan
Statement that the project meets the definition of a "state-certified production"
Notarized statement
LA LLC and LA Tax ID No.
Any other information requested by the office needed to make a determination
In accordance with state law, prior to any certification of the issuance of an initial certification, the
motion picture production company shall submit to the Office of Entertainment Industry Development
a notarized statement agreeing to pay all vendors.
Monetisation of Reliefs:
Louisiana’s Motion Picture Industry Development incentive is virtually unique amongst tax relief
programmes in the US as it is one of just three states who provide tax credits which are both
refundable and transferable.
As a consequence, while the payment to a producer under the Louisiana support scheme is crafted as a
tax credit, in practice a recipient of the tax credit can use the relief in 3 ways:
•
they can claim it as a tax credit in computing their taxable profits (tax credit)
•
they can realise the value of the relief by way of a cash payment from the Louisiana Office of
Revenue (refund)
•
they can sell their credit to a broker who will transfer to a party subject to Louisiana
Corporate or Income Tax (transfer)
Page 96 of 100
Tax Credit: In most cases the Film Productions are structured so as to limit their exposure to Louisiana
tax and for this reason the majority of the productions cannot avail of the full value of any tax credit.
Any un-used credit can then be refunded or transferred.
Refund: In Louisiana, production companies can also opt to get a refund directly as a cash payment
under the state’s tax credit buy-back scheme. Under this scheme, the Louisiana Office of Revenue will
buy back tax credits for an upfront cash payment, to the value of 85c on the dollar (previously 75c on
the dollar).
Since the move from paying 75c to paying 85c on the dollar, the popularity of this option has increased
and in 2011 48% of the tax credits issued were bought back at a combined cost of $110m. Indicative of
the size of buy-backs possible, the Louisiana Office of Revenue paid over $26 million to buy back the
credits on the film ‘Green Lantern’.
In this way the Louisiana Office of Revenue is assuming the role played by financial institutions in other
countries and providing upfront value for the credits at a cost to the credit holder of 15% of face value.
Transfer: In a recent report from the Louisiana Budget Project 65, it was reported that a large % of the
purchasers of tax credits were Louisiana state residents in the top 1% earning bracket who take
advantage of the transferability of Film Credits. In 2009, of over 2,000,000 individual tax returns filed,
only 2,056 availed of film tax credits and of those that did, over 63% reported net annual income of
over $1m
Value of Reliefs
The Only way in which the full face value (30%/35% of qualifying expenditure) of the reliefs is realised
is where a qualifying entity avails of the full value of the credit against their Louisiana State Tax Given
that upwards of 46% of reliefs are re-bought and a significant percentage are used by individuals to
relieve income tax, the net value of reliefs to the production companies may be considerably less in
practice.
Table 38 Maximum Value of Relief Provided (as a % of qualifying expenditure)
Investor Credit
Use full value of credit
Sell credits back to state (85c)
Sell credits to broker (80c)
65
Investor & Labour Credit
30%
35%
25.5%
29.75%
24%
28%
Louisiana Budget Project – Aug 2012 - Louisiana Film Tax Credits: Costly Giveaways to Hollywood
Page 97 of 100
Timing of Payment of Relief:
A production company applies to the Office of Entertainment Industry Development for certification
and provides details of the project (as discussed above). After review, an initial certification letter is
issued and the producer begins production.
It is not necessary to complete production to avail of the credits - once $300k has been spent, the
expenditure can be certified and tax credits accruing can be sold.
The timing of the payment of the relief is dependent on the method used to realise the value of the
relief. Where a production company itself is going to avail of the tax credit, they will do so as part of
their annual filing. This can involve a considerable delay from cost being incurred until the value of the
credit is realised.
Where a production company sells their credits to an ‘agent’, they only receive payment when the
agent completes the onward sale to the taxpayer who is going to avail of the credit. Producers who are
looking for an early turn-around of cash are understood to favour the state buy-back programme which
can turn credits into cash within 60 days.
Differing reliefs for indigenous/international productions
From a taxation perspective, there is no explicit distinction between the level of reliefs offered to
projects originating from without Louisiana and those offered to domestically generated projects
The key determinant of the size and the value of the relief is the quantum of the qualifying
expenditure and the manner in which the relief is availed of (tax credit, resold to state, resold to
broker).
16.5
Relief Caps or Restrictions
Caps:
There is no cap on the level of tax relief which can be provided in a given year to any claimant
There is no cap on the value of the reliefs that will be provided to a single production. For
example, the producers of the Green Lantern film received over $26 in refunds for their film
tax credits in 2011.
Main Restrictions with regard to relief:
Relief is only grated in respect of productions where the threshold expenditure of $300k has
been reached
Resident wages are restricted to $1M for the added 5% Labour Tax Credit
Above the line costs are restricted to the lower of $3M or 12% of Louisiana production
expenditure
Non ‘Louisiana production expenditure’ does not qualify
Page 98 of 100
Tax credits not set against a Louisiana State tax charge are refundable at a restricted rate of
85%
16.6
Summary of Key Aspects of Relief
Key Characteristics of Louisiana Motion Picture Incentive Program
The relief is one of a number of similarly structure reliefs which support the ‘Entertainment
Industry’ as broadly defined.
While on the surface, a corporate tax credit programme – the relief system depends on a
secondary market for transferable credits which provides investor relief
Investors who benefit from the secondary market for credits are amongst the wealthiest in the
state
A percentage of above the line costs, now restricted, are considered eligible expenditure
Tax Credits can be utilised in three ways as a consequence of the tax credits being both
transferable and refundable
There are no caps on the value of the relief provided
The Headline Numbers
Cost of relief in 2011
$231m
Number of Films Supported 2011
150 productions
Value of Louisiana Film expenditure 2011
$1.3bn
Value of credits since 2002
$1bn
Page 99 of 100
APPENDIX 1 Consultations as part of the International review
Table 39 International Film Representatives
Country
Name
Body
Ireland
Mr Patrick O'Neill
Irish Film Board
UK
Mr Neil Hoggard
Manchester Film Tax Credit Unit
Belgium
Ms Katrien Maes
Location Flanders, Belgium
Canada - State of Ontario
Ms Elissa McBride
Ontario Media Development Corporation
Czech Republic
Ms Fraňková Helena
Czech Ministry of Culture, Culture, Media, &
Audio-Vision Department
France
Mr Baptiste Heynemann
French Film Commission
New Zealand
Ms Robin Murphy
Film New Zealand
USA - State of Connecticut
Mr Ed Regero
Department of Economic and Community
Development
USA - State of Louisana
Mr Chris Stelly
Executive Director, Louisiana Economic
Development
Page 100 of 100
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