BUDAPEST — Hungary is drafting a new film law containing provisions that will dramatically increase taxes for distributors of U.S. theatrical and video titles and possibly shrink Hungary’s cinema industry, local distributors charge.

But its authors say the bill will be a boon for foreign producers.

“This is an attack on American films,” said Andras Kalman, acting managing director of the Budapest-based distributor InterCom, licensee of Warner Bros., Columbia TriStar, Buena Vista and Fox theatrical titles in Hungary.

Point system

The draft bill, scheduled for parliamentary passage before the end of the year, reportedly creates a point system in which all theatrical and video films released in Hungary are assessed a rating and levied tax based on that rating. Kalman reports that the system mandated by the draft legislation gives Hungarian- and European-made movies a more favorable tax rate than U.S.-produced product.

“For the majors, the provisions are more destructive than for domestic films,” he said.

According to Kalman, the toughest part of the law is its link between ratings and tax rates.

In the current system, Hungarian distributors pay a 2% tax on the revenue made from renting a print to a theater, and a 2% tax on profits from box office returns — revenue which is split equally between the exhibitor and distributor. This means Hungarian distributors now pay 3% tax.

The proposed law increases this rate by at least three times. “The law triples this tax to 6% for distribution and 6% for exhibition, which by this special math means that we distributors will have to pay 9%,” explained Kalman.

In addition, the film bill states that theatrical movies containing “pornography” and “violence” will receive a 20%/20%, tax which translates into a 30% tax for distributors.

The same tax regime applies to video titles even in the case of distributors like InterCom and UIP-Dunafilm, which release titles to both theaters and video stores.

The lion’s share of these fees will be channeled into a “cultural fund” which will reportedly be used to fund Hungary’s largely subsidized domestic filmmaking industry.

“The law is bad and we are strongly against it,” said Peter Balint, general manager of UIP-Dunafilm, distributor of Universal, Paramount and MGM titles in Hungary.

Its authors disagree that the law is discriminatory. According to Zsolt Kezdi-Kovacs, managing director of the Hungarian Film Union, distribution taxes in other European countries are steeper. “France has an 11% tax,” he said. “Distributors are upset because they say the fees they pay are too high. But in Hungary the taxes are high in general.” The film industry should pay its fair share.

The law will also contain a tax shelter — modeled on Irish legislation — for movies filming on Hungarian soil.

“This is the most important part of the law,” said Kezdi-Kovacs. “We will encourage foreign investors to shoot here.”

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