Pic tax more lax in U.K.

LONDON — The film biz on both sides of the Atlantic got a shot in the arm Wednesday as U.K. Finance Minister Gordon Brown rolled out a generous tax relief plan.

Brown confirmed in his budget that the tax credits, which he proposed late last year (Daily Variety, Dec. 5), would replace Section 42 and Section 48 as of April 1.

Move will give 16% tax relief on the U.K. expenditure of pics with budgets above £20 million ($35 million) and 20% for films below that figure.

U.K. producers welcomed the measure. “For the first time ever, British producers will be able to bring a major part of the budget to the table,” said Peter Watson, CEO of the Recorded Picture Co. “It will strengthen our hand and give us power in the market we haven’t had before.”

Brown said producers would have to spend just 25% of a pic’s budget in the U.K. in order to qualify for the new tax relief, down from the 40% minimum he proposed in December.

The revision was greeted with approval.

“Lowering minimum U.K. expenditure to 25% is very good news as it lowers the barrier for foreign productions to enter the U.K.,” said Libby Savill, head of film at law firm Olswang.

However, there is a sting in the tail for the Brits. The relief applies only to expenditure in the U.K., so the fee for a Yank thesp such as Johnny Depp in “Charlie and the Chocolate Factory” would qualify but wages for Brits Ralph Fiennes in “The Constant Gardener” would not, as the latter pic was shot mostly outside the U.K. “That’s very sad because it is a British film,” “Constant Gardener” producer Simon Channing-Williams said.

Other producers of international fare lined up to denounce this strict rule.

“This anomaly will discourage us from making films outside the U.K. It narrows the creative canvas for us,” Watson said.

Tim Willis, director of film at U.K. producers’ org Pact, said the U.K. biz would press the government to change that part of the law. “This is unhelpful to independent co-productions,” Willis said. “It helps U.S. studios because they can claim tax credit even if they bring in Hollywood stars to film in the U.K., while a U.K. actor filming in Spain will not qualify.”

Timothy Burrill, exec producer of Roman Polanski’s “Oliver Twist,” said, “I can only believe this is a mistake, and we will have to try and get it sorted out. But it would make a nonsense of co-productions and would stop people making a film that requires locations outside the U.K.”

Despite unhappiness with that aspect of the legislation, however, most producers were upbeat.

“Overall, this is wonderful for the British film industry,” said Andy Paterson, producer of “Girl With a Pearl Earring.” “It’s great that we have some certainty and to have a tax break directed toward producers. This has got to be the beginning of a new dawn for producers.”

Some uncertainties remain, however, according to Miles Ketley and Charles Moore, partners at law firm Wiggin.

With the tax relief restricted to pre-production, principal photography and post-production, that leaves the question of how the Treasury will define development costs, which are not included.

Secondly, how will the tax man resolve issues relating to transfer pricing so the benefit of the credit is not diluted when the negative is delivered? If the credit is treated as profit, it’s subject to taxation at 30%.

Also, it’s not clear if the industry will treat the tax credits as part of a producer’s investment; a larger stake means larger recoupment.

The race for clarification of such details is on, with the launch of the tax credits only 10 days away.

(Archie Thomas in London contributed to this report.)

Follow @Variety on Twitter for breaking news, reviews and more