×

Tax law ruling rocks U.K. production biz

By ADAM DAWTREY

The British film industry felt last week like a shanty town after a hurricane had hit it.

A sudden change in tax law, announced without warning Feb. 10 on what producers are calling “Black Tuesday,” blew apart the financing for many of the significant British movies due to start shooting over the next couple of months.

The government outlawed two of the U.K.’s most active equity funds, Inside Track and First Choice, effective immediately. That left perhaps as many as 25 projects with a gaping hole in their budgets, and their producers facing heavy losses if the pics go down.

As dazed industryites struggled to grasp the scale of the disaster that had just struck from a clear blue sky, they pleaded for a temporary reprieve to protect those already in pre-production. The government has requested a detailed list of projects in peril, but gave no sign whether it will cut them some slack, or if so, where it will draw the line.

Top of the risk-list is “The Libertine,” starring Johnny Depp, due to shoot Feb. 23, with a third of its $22 million budget from First Choice. “It’s mind-blowing,” said the pic’s American producer, Russ Smith, partner of John Malkovich. “I just came here to make a movie. I didn’t know that what has been legal could be made illegal in a second.”

Inside Track alone has “a couple of hundred million dollars worth” of movies currently under negotiation, per one insider, typically investing a third of the budgets. These include “The Constant Gardener,” directed by Fernando Meirelles for Focus Features; James Ivory’s “The White Countess,” backed by Sony Pictures Classics; the DreamWorks/Miramax project “Tulip Fever” directed by John Madden; and Julian Temple’s “The Golden Man.”

Andy Paterson, producer of “The Golden Man,” commented bitterly: “We’ve already committed very significant money to the film. Unless there are transitional arrangements, major productions are going to fall, and there will be huge consequences for companies. I personally would face a great financial loss.”

The cost of such a mass failure to British filmmakers, above- and below-the-line talent, agencies, post houses and any number of other related businesses would be catastrophic.

What’s remarkable is that no one seemed to see the clampdown coming. The new rules trap those funds that operate outside the U.K.’s Section 48 film tax break. Ingenious Media’s Inside Track and Grosvenor Park’s First Choice use generally agreed accounting principles (GAAP) rather than Section 48 to write off production costs as tax losses.

Both started last year and proved so successful in grabbing the lion’s share of British filmmaking that 17 imitators were in the midst of launching when the government blocked them. The Inland Revenue has decided that all of these are naked tax avoidance schemes, not legitimate businesses. The move also hits the P&A funds that Invicta and Scotts Atlantic have launched to bankroll the release of movies from Sony and Warner.

Ingenious execs long predicted that the other funds would eventually be closed down for precisely this reason but were shocked that their own Inside Track, whose more aggressive recoupment position was specifically designed to satisfy the taxmen, was caught in the net, too.

The long-term effect of the ban will be a significant contraction of the British production sector. Indie pics will face a harder struggle to get financed, and studio pics, already discouraged by the strong pound, will find even fewer reasons to come to Blighty.

The traditional Section 48 schemes, such as the Foresight fund coincidentally launched last week, will pick up some of the slack. But Section 48 is timed to expire in 2005, and its replacement has not yet been announced. In any case, investor confidence in a future scheme is likely to be shaken by last week’s events.

The greatest damage, however, could be to the psyche of British producers. The collapse of presales and the advent of tax funds has made dealmaking fiendishly convoluted and frustrating. It will take some resilience to recover from seeing complex and fragile production structures smashed to kindling on a single day by an indifferent government.

More Film

  • Bruno GanzSwiss Film Award in Geneva,

    Bruno Ganz, 'Downfall' and 'Wings of Desire' Star, Dies at 77

    Bruno Ganz, best known for dramatizing Adolf Hitler’s final days in “Downfall,” has died. The Swiss actor was 77 years old. The cause was reportedly colon cancer. In addition to delivering one of the definitive cinematic portrayals of the Nazi leader, Ganz played an angel who gives up immortality to experience earthly pleasures in Wim [...]

  • Bruno GanzSwiss Film Award in Geneva,

    Bruno Ganz, Star of 'Downfall' and 'Wings of Desire,' Dies at 77

    Bruno Ganz, the Swiss actor whose portrayal of Adolf Hitler in 2004’s “Downfall” made him an international star, has died. He was 77. Ganz died at home in Zurich on Friday, his management told various media outlets. Ganz was a familiar figure in German-language cinema, with a career spanning nearly 60 years. In addition to [...]

  • Steve Bannon appears in The Brink

    Sundance Film Review: Stephen K. Bannon in 'The Brink'

    Stephen K. Bannon drinks Kombucha (who knew?), the fermented tea beverage for health fanatics that tastes like…well, if they ever invented a soft drink called Germs, that’s what Kombucha tastes like. In “The Brink,” Alison Klayman’s fly-on-the-wall, rise-and-fall-and-rise-of-a-white-nationalist documentary, Bannon explains that he likes Kombucha because it gives him a lift; he drinks it for [...]

  • Walt Disney Archives Founder Dave Smith

    Walt Disney Archives Founder Dave Smith Dies at 78

    Walt Disney Archives founder Dave Smith, the historian who spent 40 years cataloging and preserving the company’s legacy of entertainment and innovation, died Friday in Burbank, Calif. He was 78. Smith served as Disney’s chief archivist from 1970 to 2010. He was named a Disney Legend in 2007 and served as a consultant to the [...]

  • Oscar OScars Placeholder

    Cinematographers Praise Academy Reversal: 'We Thank You for Your Show of Respect'

    Cinematographers who fought the decision to curtail four Oscar presentations have praised the Academy of Motion Picture Arts and Sciences for reversing the exclusions. “We thank you for your show of respect for the hard-working members of the film community, whose dedication and exceptional talents deserve the public recognition this reversal now allows them to enjoy,” [...]

  • Peter Parker and Miles Morales in

    'Spider-Man: Into the Spiderverse' Colored Outside the Lines

    The well-worn superhero genre and one of its best-known icons are unlikely vehicles for creating a visually fresh animated feature. But Sony Pictures Animation’s work on the Oscar-nominated animated feature “Spider-Man: Into the Spider-Verse” shows throwing out the rule book and letting everyone play in the creative sandbox can pay off big. “I think we [...]

  • Denis Villeneuve

    Denis Villeneuve's 'Dune' Gets November 2020 Release Date

    Warner Bros. has scheduled Legendary’s science-fiction tentpole “Dune” for a Nov. 20, 2020, release in 3D and Imax. “Aquaman” star Jason Momoa is in negotiations to join the “Dune” reboot with Timothee Chalamet, Javier Bardem, Rebecca Ferguson, Stellan Skarsgard, Dave Bautista, Josh Brolin, Oscar Isaac, and Zendaya. Production is expected to launch in the spring [...]

More From Our Brands

Access exclusive content