Government program grows local film business

Since its inception at the end of 2004, Belgium’s tax shelter has transformed the local film economy, creating thousands of jobs and channeling an estimated E150 million ($194 million) of new funding into audiovisual production. So far, so good, but the question potential investors are now asking is how well equipped the tax shelter is to withstand a global financial crisis that shows few signs of letting up.

There are reasons to be positive, not least because the shelter — which offers companies based in Belgium a 150% tax break on money invested in feature films, documentaries, animation and certain TV productions — functions independently of the Belgian government.

“Unlike a subsidy system, there is nothing there to squeeze in times of crisis,” says Adrian Politowski, co-managing director of Motion Invest Group (MIG). As he explains it, “The shelter basically provides a fiscal advantage that the government recoups through employment and other sources.”

Intermediary groups such as MIG and Scope Invest, which originate in the French-speaking part of the country, are attracting more and more European co-productions to Belgium and providing investors with the opportunity to invest in films with crossover potential.

To be eligible for the tax shelter, each film project must involve a Belgian production house and meet the European Union definition of a European audiovisual product. In the past, MIG has attracted investors to big-budget European co-productions such as “Asterix at

the Olympic Games” and “Black Book.” Upcoming projects include “The Vintner’s Luck” (from Kiwi helmer Niki Caro) and German-Polish co-production “Within the Whirlwind.”

The alternative local model, where Belgian producers approach investors directly to invest in films with a more specific local potential, also has its followers.

“The (global economic) crisis underlines the advantages of having an investment with a guaranteed positive return,” says Fabrice Delville, managing director of Scope Invest. “Thanks to the tax benefit, we find that investors value our investment proposal even more today than during a favorable economic climate.”

A bleaker indicator of the tax shelter’s prospect in 2009 is being painted by such Belgian banks as Fortis, which, along with ING, began providing investors with a slate of films for investment at the end of 2007.

“We’ve been impacted on two levels. Firstly, there are plainly fewer companies that have a sufficient taxable base to invest, and some of those companies that do are holding onto their cash for other purposes,” says David Claikens, co-managing director of Fortis Film Fund. “The other thing is the banking and financial world has had some bad press in the last 12 to 18 months, so that has made some investors less eager to invest in products offered by financial institutions.”

However, producer Peter Bouckaert, who is also president of the Flemish Film Producers Union, sees a silver lining. “We are still not at the point where most of the companies are aware of the tax shelter system,” he says. “Of course, the crisis will have an impact because there will be less money to invest, but every week, there are new companies discovering the tax shelter and using it.”

The tax shelter goes before the European Commission for approval at the end of the year. Bouckaert does not foresee any major changes to the shelter other than making it slightly lighter on the administrative side and more user-friendly.

However, banks like Fortis and intermediary companies like MIG are keen to see the existing E500,000 investment cap increased to E1 million. According to MIG’s Politowski, some have suggested opening the tax shelter to other industries such as fashion, videogames, theater and sporting infrastructures, though these changes are likely to remain at the discussion level in 2009.

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