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France’s Revamped Tax Rebate Scheme to Boost Domestic and International Shoots

Exchange rate swing and new legislation expected to increase production in 2015-16

France’s Revamped Tax Rebate Scheme Boost

Countries throughout the world are increasingly competing to attract major international productions – in particular Hollywood blockbusters – due to multiplier effect on domestic economies and the associated visibility that powers tourism flows.

Hollywood in turn is key to use such incentives to leverage its financing and reduce risk exposure.

In 2012 the European Commission touted a proposal to cut back on what it dubbed a “subsidy race” between European countries to outdo each other in terms of the attractiveness of their tax incentive schemes.

But the Commission’s draft Cinema Communication not only received fierce opposition from outlying European countries who use such schemes to bolster their economies, ibut was also criticized by Europe’s biggest countries, including the U.K., France and Germany.

In 2013, the U.K. extended rebates to vfx work, animation and TV production, which further fuelled France’s desire to reinforce its own scheme.

The final version of the Commission’s Communication was approved in late 2013 and gave its blessing to the myriad array of film-related tax incentive schemes operating in Europe.

Bolstered by this decision, and in the wake of extensive lobbying from France’s technical associations, France’s two-tiered domestic and international tax rebate scheme was upwardly revised in December 2014.

The new provisions for the international scheme include an increase in the rate (from 20% to 30%) and in the ceiling (from €20 million ($22.4 million) to €30 million ($34 million)).

The measures enter into force from Jan. 1, 2016 onwards.

In the domestic tax rebate scheme, the rate for live action films has also been increased – from 20% to 30%. Both schemes have been approved by the European Commission.

 

Two important technical changes have already entered into force. Until now in order to qualify for the Tax Rebate For International Production (TRIP) scheme, it was necessary to spend at least €1 million ($1.2 million) in France. But now if producers spend 50% of the film’s total budget in France (including above- and below-the-line expenses), they can also qualify for TRIP. This is a significant change that now opens the way to smaller European productions with lower budgets who wouldn’t have qualified before.

The criteria for including VFX work under the TRIP scheme have also been made more flexible, which means that since the start of this year it’s been easier for French-based VFX expenses to be included within the scheme.

Originally introduced in 2009, the TRIP has been progressively upgraded, above all in terms of the areas of production covered, the range of eligible expenses, the ceiling – and now the rate.

In 2013, the scheme underwent a major overhaul, reinforcing its coverage for vfx and animation work.

The tax rebate scheme is integrated within wider French public support for all areas of new technology, including film and TV.

France provides one of Europe’s highest level of tax incentives for R&D expenditure – at a 30% rate – which has been extremely important for the country’s vfx and animation houses, and has been used by companies such as Buf, Illumination Mac Guff and Mikros Image to invest in proprietary software. This was one of the factors that attracted Universal to France, in addition to the talent base and the TRIP scheme.

French public support for universities has also enabled the country to pioneer new developments in the field of CGI and animation and the country’s top schools are viewed as some of the world’s best training grounds in this field.

Gaul’s cinema agency, the CNC, also oversees a tax rebate scheme for French video games (CIJV) which enables French video game producers to deduct 20% of their eligible expenses, offering further synergies with vfx shops. The scheme was also approved by the European Commission in December 2014.

2014 saw an unprecedented number of major Hollywood productions lens in France, including “The Hunger Games,” “Bastille Day” and NBC mini-series “Rosemary’s Baby,” and a rising number of high-budget Asian productions.

However, there was an evident slowdown in the number of English-language productions approved under the TRIP scheme in the second half of 2014, which provided further mementum to upwardly revise the scheme as quickly as possible.

The fact that the underlying rate remained at 20% meant that the French scheme was less generous than many of its immediate competitors.

This factor was considered to be far more important than the ceiling on eligible expenses, which in 2013 was upped from €4 million ($4.5 million) to $11.2 million, and then to $22.4 million.

“Few movies, if any, spend $110 million in Europe. A $22 million cap on a 20% of spend rebate is like having no cap at all,” remarked Franck Priot, chief operating officer of Film France, a network of Gallic film commissions.

The increase from 20% to 30% was considered to be necessary to compete with 25-30% tax rebate schemes available in nearby competing territories, including French-speaking neighbor Belgium.

The upward revision of the tax rebate scheme was also viewed by some commentators as a means of mitigating the new collective bargaining agreement introduced in July 2014, which extends to film technicians.

“The new agreement has made overtime much more expensive, generating a 10% increase in salaries and fringes,” suggests film financier Leonard Glowinski. “This affects domestic and international shoots. What we notice is that it’s taking longer to finance a film, because films are more expensive, there is less TV funding and it’s tougher to get a distribution deal.”

However line producer John Bernard suggests that the impact of the new agreement has been less significant for major international productions: “The new changes to the collective bargaining agreement has actually given us greater flexibility. It’s now clearer how we can work around hours and dates, but it’s necessary to have a stronger idea of what you’re doing. If the production isn’t well managed it can be much more expensive. But as long as things are well planned the new agreement can actually deliver greater flexibility.”

If anything, it is French producers that have expressed greater concerns in terms of higher budgets and difficulties in raising finance, and the French authorities are just as much focused at this level as they are on attracting international shoots.

Given the huge size of France’s domestic film and TV industry, the French authorities aim to bolster the domestic industry and stem runaway domestic production, precisely to territories such as Belgium, Luxembourg and Eastern Europe.

Alongside TRIP, there are separate rules for domestic productions – with distinct schemes for live-action and animation work.