Regulations put film industry in tizzy

Bill enrages Spain's private broadcasters

Few film laws have proved so polemical, and in the end may never exist. The announced deadline for approval by Spain’s Council of Ministers of a rabidly debated draft film law came and went April 13.

It may simply be too hot a political potato.

The bill enraged Spain’s private broadcasters. Since 1999, they have been obliged to channel 5% of annual revenue into buying or co-producing Spanish or European films. The new law would tighten their commitment even more.

“I don’t think the government will want to confront the TV companies with elections on the horizon,” producer Andres Vicente Gomez says.

By late April, there were three takes on the proposed film law: It would still be approved; it would be let go quietly; its new tax regs would be broken out and approved.

There’s little clarity about how Spain’s proposed new tax breaks might impact. Under current law, which now may or may not change, producers could write off 17.5% of their film investment. Trouble is that most do not generate enough profits to yield sizable taxable income, hence significant breaks.

And while seeking to lower corporate tax rates, Spanish finance minister Pedro Solbes is at the same time phasing out tax exemptions. Sans reg change, producers’ breaks would drop to 15% of production costs in 2008.

The draft law’s clearest novelty is to maintain exemptions for producers at 18% of film investment through 2011. Also, financial (read corporate) investors, teamed in so-called Economic Interest Groups, see writeoffs raised from 5% to 18% as well.

“My understanding is that financial investors would be able to write off 18% of tax liability from any activity, not just the film business,” says Filmax chairman Julio Fernandez.

But making things murkier, it won’t be that simple. “It won’t be a case of investing $1 million and deducting $180,000,” says a source.

Director-producer Ibon Cormenzana, a former Arthur Andersen exec, has set up Arcadia Capital to tap tax coin for films.

Before draft tax regs take effect, the key is for financial — normally corporate — investors to become producers. And in any case, to minimize risk, they should snag subsidies, TV money or pre-sales to cover most of a budget, Cormenzana says.

Spain’s production community is split on just how much of a sweetener the new tax regs might be.

“An 18% break still leaves investors on the hook for 82%. For financiers, Spanish films are too high-risk for an 18% break to persuade them to invest,” says one producer with financial connections.

Spain’s film and financial communities still regard one another with incomprehension or disinterest.

“Unlike Britain, Spain’s film industry has few suits,” Cormenzana says.

“Whatever happens, Spain will be less well placed than the U.K. or Germany with regards to tax breaks,”

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