EC approves U.K. tax credits

Cultural test changed to beef up British content

LONDON — The U.K.’s new system of tax credits for film production has finally been approved by the European Commission.

But the EC has insisted upon a change to the cultural test that underpins the tax credit, to ensure that films can only claim the benefit if they have genuine British content, or contribute to British “diversity, heritage and creativity.”

This tweak means that the legislation introducing the tax credit, originally passed this summer, will have to go back to the U.K. parliament for formal reapproval. That process is expected to take until the end of this year, with the tax credit finally coming into full effect on Jan. 1.

At the same time, the U.K. government has announced the extension of its old Section 42 tax break to the end of December.

This is intended to make sure that any film currently shooting which either finishes production before Dec. 31, or fails the revised version of the cultural test, can still access some form of tax break.

Under the rewritten cultural test, films can now score points in four categories — cultural content (British story, setting, characters, source material or language); cultural contribution (promoting, developing and enhancing British diversity, heritage and creativity), cultural hubs (locations, studios, post-production etc.) and cultural practitioners (British or other European actors, directors, writers and producers).

As previously, films still have to get at least 16 points out of the available 31 in order to qualify as British. But under the new system, the points are weighted more heavily towards cultural content and contribution. Films cannot now pass without scoring at least some points in either of these sections.

The EC was concerned that the old proposals would enable a film to qualify as British simply by shooting in the U.K. and using sufficient British talent, but without having any significant British content.

The “cultural contribution” category was not part of the original draft test, but was added after negotiations between the U.K. government and the EC.

This new section has been left dliberately vague, in order to give the U.K. government some discretion to approve a project of exceptional cultural value that fails for technical reasons to accumulate enough points in the other three, more precisely defined categories.

U.K. film minister Shaun Woodward said, “The film scheme will be good both for independent and large studio productions. The cultural test will ensure that every film qualifying for tax relief either reflects or contrib-utes to furthering British culture. And it is good news for British talent, studios, locations and all those offering production facilities.”

The Department of Culture, Media and Sport today published the full text of the new cultural test, and will publish its revised guidance on how to apply the test in practice Thursday (Nov. 23).

The financial structure of the tax credit remains unaltered. Films costing under £20 million ($38 million) will get up 20% of their U.K. expenditure, and bigger-budget projects will be able to claim back up to 16%.

This tax credit will apply to any qualifying film that started shooting after April 1, when the old Section 42 and Section 48 tax breaks originally expired.

However, any films that started shooting since then on the understand-ing that it would meet the cultural test as originally drafted, but that now finds it doesn’t do so, will be able to access Section 42 (typically worth about 8% of budgets) until the end of 2006.

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