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MADRID — Jose Luis Rodriguez Zapatero’s socialist government has moved to extend Spain’s film production tax shelter for private investors.

Announced Friday at a cabinet meeting, the proposal is framed in a decree law that still needs parliamentary approval.

Spain’s opposition Popular Party is believed, however, to look favorably on Spain’s film tax shelter. The length of the extension — most probably one or two years — will be decided in parliamentary debate.

First approved December 2007 for private investors — Spanish individuals or companies from outside the film sector — Spain’s film break is levied at 18% of investment. It authorizes investors to group together in a so-called Agrupacion de Interes Economico (AIE) to co-produce Spanish long features.

The tax shelter was used earlier this year to co-finance the upcoming “Wrath of the Titans,” from Warner Bros. and Legendary Pics.

The shelter was due to end Dec. 31.

The extension would remove one cause of the uncertainty surrounding future film financing for an increasingly finance-strapped Spanish film industry, which has large difficulties accessing local bank finance.

AIE are still used on a relatively small number of films – 13 of the 201 Spanish films produced in 2010, for example. But, regularly created by a clutch of production companies with financial expertise — Morena Films, Tornasol Films, Lazona and Arcadia Motion Pics. — AIEs have co-financed some of Spain’s biggest recent box office hits.

In 2009, for example, both “Cell 211″ (Euros 8.7 million/$13 million B.O. in Spain) and “The Secret of Their Eyes” ($7.8 million B.O.) were part financed via the tax shelters, used in 13 films in all.

These movies accounted for 7% of all films produced in 2009, but 26% of Spanish films’ total B.O. trawl, according to ICAA estimates.

“The volume of tax breaks hasn’t been incredibly significant but it has been relevant. Many investors have repeated, meaning that the critical mass of tax-driven investment will go up in the long-term,” said Lazona producer Gonzalo Salazar-Simpson, also prexy of Spain’s Asociacion Estatal de Cine, a producers’ lobby.

He added that, going forward, films such as Sam Shepard starrer “Blackthorn” and Rodrigo Cortes’ Sundance hit “Buried” — Spanish productions shot in English with foreign actors and Spanish crews — will be difficult to make without tax breaks.

General elections are due in Spain by March 2012. Currently, Spain’s conservative Popular Party holds a significant lead in opinion polls.

With Spain under severe international pressure to curb its state deficits, no incoming government of any political stripe is likely to increase its central ICAA Film Institute fund, set at Euros 76.8 million ($114.7 million) for 2011.

In such a context, tax breaks may well form an increasing part of Spain’s film financing mix.

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