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Tax season

Brits nail down a new scheme while others enter fray

A correction was made to this article on Nov. 4, 2004.

LONDON — As sales companies and producers attending the American Film Market well know, an attractive tax incentive can greatly contribute to a film’s budget and be reason enough to move production to a far-flung overseas location. Yet it’s not just exotic places like Fiji and New Zealand, but also U.S. spots like Louisiana, New Mexico and Pennsylvania that currently offer tax shelters for film and TV productions.

The big question with any new tax incentive is always the same: Will producers actually see the cash? What might look good on paper can turn into a bureaucratic nightmare with uncooperative officials, unskilled crews and Byzantine regulations.

Plus, these incentives often hinge on the political climate. If a government suddenly decides to close a loophole, it can leave producers standing in the rain without an umbrella.

For a while now, everybody has been crossing their fingers that the German government won’t suddenly pull the plug on the country’s famous tax funds. In contrast, the Dutch government pleasantly surprised producers when it reversed a decision to phase out its film CV scheme, instead boosting it by $24 million.

Following is an overview of countries with new tax schemes as well as those with old ones that feature a new twist.

FRANCE

After the success of neighboring Belgium’s scheme, the French have decided to make their tax incentive more attractive. The credit d’impot was launched in January to stop Gallic producers from straying to more financially attractive locations.

Producers can claim back between 10% and 20% of their below-the-line costs as long as the majority of those are spent in France. There used to be a $615,000 cap, but starting in January it will be raised to $1.25 million.

“With the new cap we make the system more attractive to films in the medium-budget range, which wasn’t the case before,” explains Francois Hurard, head of French producers org, Centre National de la Cinematographie (CNC).

Hurard insists that the system is not just applicable to Gallic producers. “If you bring in foreign talent for your above-the-line but keep your below-the-line costs French, you’re eligible for the tax credit.”

Credit d’impot is a hit with French producers (films that have tapped it include Gerard Pires’ “Les Chevaliers du Ciel”) and the CNC is currently working with local banks to develop a system by which they will lend against the tax credit.

UNITED KINGDOM

It’s been a long, difficult development — one not quite over yet — but Blighty has a new tax-based setup for films.

The new scheme — which will replace the old sale-and-lease-back format under Section 48, which will expire in July and was usually worth between 12%-15% of the budget — looks like a generous offer: Producers are promised up to 20% of the production costs of a British qualifying film with a budget of up to $36 million.

“At close inspection, though, it’s not quite clear yet whether producers will be able to access the full 20% and whether one can bank the rebate and on what terms. These details need to be worked out,” says Chris Roberts, co-CEO of Ascendant Pictures, currently shooting “Half Light” in Wales.

Stewart Till, chairman of the U.K. Film Council, is optimistic, noting, “Generally, this is fantastic news for the U.K. film industry and shows the government’s commitment. We now have to work out the small print.”

Meanwhile, the Film Council and the government are reviewing Blighty’s co-production agreements in order to stop the abuses and incongruities of the past. This means that, come July next year, the tax situation in Blighty could be very different. There also are whispers that a U.K.-U.S. co-production could be considered.

HUNGARY

Competition to lure film and TV productions to middle Europe is fierce, with low-cost Romania, the Czech Republic and Bulgaria jockeying for business. Hungary realized it needed tax incentives to break out of the pack in the region.

Under a recently introduced scheme, producers will be able to claim back up to 20% of their Hungarian spend. Any size production is eligible, but those with budgets exceeding $740,000 may claim rebates back more quickly by requesting quarterly audits versus annual ones.

The initiative goes hand in hand with the building of an enormous studio complex in Etyek, near Budapest, which should be completed early next year.

“We are also aware of the need for (more) crews. I believe that Hungarian crews are already very competitive internationally, but since we anticipate an increased need we’ve already set up several film schools,” says Miklos Taba, director of the newly created National Film Office.

The first taker is Hallmark’s “A Christmas Carol,” which should receive its tax rebate shortly and thus prove — to international producers, and the local banks, as the tax credit is not yet bankable — that soft money is indeed available in Hungary.

SOUTH AFRICA

August saw the launch of the South African tax incentive scheme, under which foreign producers may claim back up to 15% of their South African expenses — provided that productions spend at least $3.8 million locally and complete 50% of principal photography in the country.

The amount available on a single production is capped at $1.5 million. As production costs are, on average, 40% cheaper than in the U.S., South Africa can offer an attractive deal.

Two of the first productions to apply for the tax rebate are “Ask the Dusk” and “Lord of War.” And it looks like they’ll be seeing that cash imminently.

Philippe Rousselet, producer of the $50 million “Lord of War,” found filming in South Africa a good experience. “There aren’t many top crews here, but the ones that are here are very good,” he says. “What they do need are better soundstages and banks that lend against the tax credit.”

NEW YORK

What do Chicago, Toronto, London and even Liverpool have in common? They’ve all doubled as New York City onscreen.

To incentivize producers to actually shoot in Gotham, Mayor Michael Bloomberg and Gov. George Pataki recently introduced a production tax credit program.

Among the benefits is a 10% credit for below-the-line costs, provided that at least 75% of these costs are spent at a New York state soundstage. If below-the-line expenditures amount to less than $3 million, location shoots also are eligible for credit.

The production scheme is capped at $25 million each year and credit is distributed on a first-come, first-served basis. New York City offers an additional 5% credit on production costs as well as help with marketing, location scouting and sourcing.

“It’s going to be interesting to see what happens,” comments Walter Josten, of Blue Rider, which specializes in film financing via tax credits. “New York is a big union city and that makes it more expensive to shoot there. But then again, with a scheme like that, the more you spend, the greater your benefits. You just have to watch out that your budget doesn’t creep up on you.”

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