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Oz tax breaks end for H’w’d

Court ruling brands schemes as tax avoidance

SYDNEY — The Hollywood studios will not likely be able to take advantage again of the Australian tax break that funded “The Matrix” and “Dark City.”

The Australian Tax Office issued a draft ruling last week on division 10B of the tax act, which had been used to finance big-budget films shot Down Under until the ATO rejected such tax breaks for “Moulin Rouge” and “Red Planet.”

The U.S. studios had used 10B to fully fund films via wealthy Oz investors who formed a “special purpose company” into which they funneled 20%-25% of the budget and borrowed the rest. The investors obtained a 100% tax break over two years.

The ruling unequivocally brands these schemes as tax avoidance, claiming investors receive tax benefits greater than the sums they invest (because they borrow the balance); they are not at risk (because their loans are guaranteed by the studios); and they’re assured of profits regardless of how films perform.

While the ATO invites submissions on its ruling, tax experts and studio reps doubt the ATO will soften its stance.

“This sends the wrong signal (overseas) and will send producers off to Germany and Canada, which have clear, simple tax incentives,” said PricewaterhouseCoopers tax director Dennis Tomaras. “The ATO does not seem to have discriminated between the good and bad (schemes); they seem to be against everything.”

Ignores ‘commercial realities’

Fox Studios Australia chief exec Kim Williams slammed the ruling, telling Daily Variety, “It flies in the face of the commercial realities of film financing and the statements made by Prime Minister John Howard when he was the treasurer and he introduced the 10B division.”

Responding to criticism from the U.S. majors and the Aussie industry about the uncertainty over 10B, the government recently introduced a 12.5% tax rebate for producers of big budget films lensed in Oz which was intended to be competitive with Canada’s efforts.

But Williams says Australia is still at a disadvantage to Canada because, unlike the Canuck incentive, the Oz rebate doesn’t apply to TV series and telepics.

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