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Code ‘Rouge’ for Oz

Fox, studios feel chill on future film funding

SYDNEY — The Aussie government will move to clear up the confusion after tax officers refused to grant “Moulin Rouge” investors a tax break under the so-called 10B plan that has attracted foreign filmmakers to the country.

Minister for the Arts Peter McGauran told Daily Variety: “It’s growing to be a very serious issue. Even if the failed applicants deserved to be rejected, it is sending the wrong signals and the government will address the issue.”

He said the government will announce soon the results of a review into the system now underway. The minister’s office confirmed that meetings with studio reps have been held in recent weeks.

Encourage investment

Producers want the legislation changed to encourage investment or a clarification of the system.

“In our opinion, it (the ruling) is not about ‘Moulin Rouge,’ ” said 20th Century Fox co-chairman Jim Gianopulos. “What’s at issue is opportunities for investment are not allowed to happen. When you look at the wealth of talent in Australia, both above and below the line, as well as the state of the art facilities, it would be a pity not to use them. Many other countries have tax incentives. The ruling does seriously inhibit a real growth in opportunity.”

Division 10B of the Tax Act has been used to bankroll U.S.-backed films such as “The Matrix” and “Dark City.”

Several other films still await rulings, including the Jerry Bruckheimer-produced “Down and Under,” Warner Bros.’ “Scooby Doo” and the WB/Village Roadshow Pictures co-production “Queen of the Damned.”

Because of the complicated nature of the tax shelter, these pics may actually pass the tax office ruling.

Intricate application

McGauran said: “There are, from the outside, different interpretations as to the tax arrangements… and only the ATO would know all of the intricacies of the application.”

The tax office decision leaves Fox on the hook for “Moulin Rouge’s” entire $53 million production budget. The investors who had agreed to bankroll the pic did so on condition that the film would be granted a 10B ruling.

Typically, this funding works like sale-and-leaseback schemes, where investors gain the copyright and enter distribution agreements with studios. The copyright usually reverts to the studios at a later date.

The deals are structured so that the studio gets a 10% discount on the production costs — a handy saving that Fox now won’t receive on “Moulin Rouge.”

“Moulin Rouge” producer Martin Brown, whose new production shingle will facilitate offshore projects said, “The lack of clarity from the government and the ATO is a disincentive for studios and major independents wanting to come here.”

Fox Studios Australia CEO Kim Williams, referring to the principle of 10B financing and not specifically to the “Moulin Rouge” case, said: “What’s important is that we’re not asking for anything that doesn’t already exist in the (tax) laws. The ATO has chosen to take an aggressive stance against major films. We have sought action from the government to deliver certainty and a competitive context with other nations that offer incentives.”

Murray Forrest, chairman of AUSFilm, the industry group that promotes Australia as a production destination, was fuming at the tax office decision. “This is the last thing we need,” he said. “This will turn away production to countries like Canada and Ireland which have incentives and which are making it easier for offshore producers.”

(Don Groves in Sydney and Tim Swanson in Los Angeles contributed to this report).

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