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Italy’s film community was hanging from a cliff until recently, with the threat of deep funding cuts starting to spoil its box office boom party. Then, in March, the Silvio Berlusconi government suddenly backpedaled and financed a system of incentives by introducing a tax on automobile fuel which, while much maligned, has the advantage of being permanent.

That means Italy’s industry is no longer dependent for funding on the government’s yearly budget, freeing the film sector from political and, to some extent, economic volatility. The country now has a mix of strong tax credits and straight subsidies solidly in place.

The system is helping Italy wean itself off its sometimes parasitic past financing practices, which consisted solely of subsidies. It is stimulating equity investments, albeit late compared with other major European territories.

The incentives — which give local producers a 20% tax break, outside investors a 40% tax shelter and foreign productions a 25% tax credit — are now indispensable tools for an industry with a yearning to leap forward with new business models. Since early 2011, private investors external to the Italian film industry have filed paperwork for more than $33 million toward local film productions.

Woody Allen’s Rome-set “Bop Decameron,” which is entirely financed by Berlusconi-owned Medusa, is tapping into the Italo incentives, though U.S. productions have not been flocking to Italy lately due to the weak dollar.

The template for Italy’s evolving industry is Paolo Sorrentino’s Sean Penn starrer “This Must Be The Place,” which launched in Cannes in May, but will be released by Medusa in Italy in October.

The $41 million English-language “Place” is co-produced by Indigo Film, Lucky Red, Medusa, Gaul’s ARP and the Irish Film Board, with financing from Italy’s Mediocredito bank.

Venice Film Festival: Italian Cinema
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