Scotland s Future on Screen: Support to the Screen Sector in an Independent Scotland

Transcription

1 ent nd Scotland s Future on Screen: Support to the Screen Sector in an Independent Scotland scotreferendum.com 19/11/ :18

2 INTRODUCTION BY FIONA HYSLOP MSP, CABINET SECRETARY FOR CULTURE AND EXTERNAL AFFAIRS On 18 September 2014 the people of Scotland will take a momentous decision. To inform that decision, on 26 November 2013 the Scottish Government published Scotland s Future: Your Guide to an Independent Scotland, the most detailed prospectus ever published for the creation or re-creation of an independent country. In considering the opportunities presented by independence for the screen sector, Scotland s Future: Your Guide to an Independent Scotland, stated that We will also encourage inward investment in film and television production in Scotland, and use our new overseas network to promote Scotland as a location for film and television production. We plan to continue the existing fiscal incentives for such production, and, within the first term of an independent Scottish parliament, we propose to look at ways to encourage further development in the sector, through incentives, infrastructural investment and support for development, skills and training. This paper is designed to help inform, in due course, that examination of potential for support to the screen sector in an independent Scotland. It does not aim to pre-empt any budget that may be put before an independent Scottish Parliament by the Cabinet Secretary for Finance in an independent Scottish Government or any decisions that that Parliament might take on it. It does, though, aim to inform that future discussion and debate. The first sentence of the preface by the First Minister of Scotland, the Rt Hon Alex Salmond MSP to Scotland s Future: Your Guide to an Independent Scotland was Scotland is an ancient nation, renowned for the ingenuity and creativity of our people, the breathtaking beauty of our land and the brilliance of our scholars. Those factors have marked Scotland s contribution to film and television but also highlight how much more could be achieved:

3 The brilliance of a scholar such as James Clerk Maxwell, led to the discovery of the electromagnetic spectrum and that of James Logie Baird to its harnessing for television broadcasting yet Scotland is a relatively small player in broadcasting. The breathtaking beauty of our land has attracted location shooting for films such as The Dark Knight Rises and Skyfall yet Scotland s lack of a screen production infrastructure means that such location shooting is not often accompanied by indoor shooting. The ingenuity and creativity of our people has produced many fine talents in film and television yet too many of them have had to practice outside Scotland given its comparatively small screen production sector. Our ancient history as a nation has inspired memorable films such as Braveheart and Rob Roy yet there remains scope to increase the number of productions that like, for example, Sunshine on Leith and The Angels Share portray modern Scotland in all its complexity. Independence for Scotland offers the opportunity, by focusing the world s attention on our nation and giving power over crucial instruments such as fiscal incentives and use of the television licence fee, to make a step change in support for the screen sector: this paper seeks to inform debate on how best to make that happen. FIONA HYSLOP

4 Screen Production in Scotland 1. Fostering screen production is a high priority for the Scottish Government, as it provides a significant part of the wider creative industries one of the seven key growth sectors as identified by the Scottish Government to promote economic development. Scotland has a wealth of creative talent in the screen sector and ensuring opportunities for that talent to flourish is vital. 2. As well as direct economic benefits, a successful film and television sector can have significant spill-overs into other parts of the economy, particularly the tourism sector. There is evidence that tourists will be attracted to Scotland to visit sets and places seen on TV and in movies. For example, it is estimated that The Da Vinci Code has helped increase visitor numbers to Rosslyn Chapel by 72% since and that visitor numbers to Tobermory rose by 40% during Balamory s BBC TV run Therefore, given these benefits the Scottish Government has taken a number of steps to support film and TV production in Scotland. 4. Substantial support goes to the screen sector from the Scottish Government and the wider public sector in Scotland. For example in , almost 21 million went in support across production, education and training, support to festivals and venues that show films etc., broken down as follows: Creative Scotland: 7,813,987 Creative Skillset 450,861 Event Scotland 90,000 Film G (Gaelic Film Fund) 30,000 MG Alba 11,800,000 Scottish Enterprise 659,171 SG Expo Fund 150,000 Total: 20,994, The Scottish Government is also taking forward a range of initiatives to support film and television production in Scotland. In particular, following the publication in March 2013 of a report by Ekos Consultants on Delivery Options for Production Space for Film and TV, a Development Brief issued by Scottish Enterprise in partnership with the Scottish Government and Creative Scotland sought proposals from the private sector by 2 May 2014 to develop and operate a studio complex 3. The proposals received are currently being considered. Even in the event of infrastructure development, however, under the current constitutional framework, the Scottish Government is unable to use the fiscal levers available to other national governments to nurture and grow its domestic film and TV production sector, or to attract new inward investment, to maximise the benefit of

5 such development. This paper sets out a range of new options which would be potentially available to an independent Scotland to support the sector. Existing UK Tax Relief 6. The UK, alongside many other countries, provides a number of tax incentives for domestic TV and film production. 7. The Finance Act 2006 introduced a Film Tax Credit 4. The tax credit (which is against corporation tax) allows production companies to claim a payable cash rebate of up to 25% of the qualifying UK film production expenditure for films costing 20 million or less. For films costing more than 20 million, the film production company can claim a payable cash rebate of 25% on the first 20 million and 20% thereafter. The tax relief can only be claimed on up to 80 per cent of total qualifying expenditure. It is therefore typically worth 16% of qualifying production costs. 8. For films to qualify for a tax credit (or tax relief) they must meet certain criteria including: be made by a qualifying UK film production company; be intended for theatrical release; qualify as a British Film via the cultural test, as set out in the Films Act 1985, administered by the British Film Institute, or be made under one of the UK's film co-production treaties; meet the minimum UK core expenditure requirement of 10%. 9. Since April 2013, reliefs similar to that available for films have been extended to animation, and to high-end TV productions that have production costs of over 1 million an hour. Since April 2014 a similar relief has been in place for video games. On independence, as is well precedented in other instances such as Ireland, all existing incentives would continue on the principle of existing law continuing to have effect unless and until amended or repealed. Tax Relief and Other Incentives offered Elsewhere A number of countries offer tax relief and fiscal incentives to support the domestic film and TV production and to attract additional inward investment into the sector. The following table summarises some of the support available in other European countries, with more detail in the text thereafter: 4 UK Government Autumn Statement 2013, p.51, available at _Statement_2013.pdf 5 Unless otherwise specified, data taken from Film Financing and Television Programming: A Taxation Guide (6 th edition) by KPMG, available at As fiscal and grant regimes develop, details of support available will vary over time.

6 UK Isle of Man Ireland Netherlands Belgium France Scheme Type Eligibility Limitations Tax Credit Equity Investment Tax Relief R&D Tax Credit Production Funding Investment Tax Incentive Immediate Depreciation Tax Shelter Tax Credits Made by qualifying UK film production companies Intended for theatrical release Qualify as a British Film via the Cultural Test Projects considered on a case-by-case basis R&D tax credit for projects advancing R&D activities Must be a business asset Depreciation against development costs, not films Must be Belgium Realise taxable retained earnings of at least 1.5m. Prepare to invest up to 500k. Not themselves engaged in the audio-video sector Subject to corporation tax Production located on French territory with French/EU participants 25% of production costs up to 20 million, 20% thereafter to a maximum of 80% of total qualifying expenditure. No cap on amount claimed. No upper/lower limits 28% tax relief, increasing to 32% in 2015 with a 50 million ceiling per project Production funding ranges from 100% for projects up to 100k to 25% for over 5m. Deduction vary between 1%-28% and can be applied to investments between 2,200 and 301,800. Investor can exempt 150% of investment from taxable retained earnings up to 750k or 50% of taxable retained earnings Tax credits of 20% of costs against corporation tax Deductions from taxable income (40% and in some cases 48%) for monies paid to firms whose exclusive activity is film up to certain limits.

7 Italy Czech Republic Hungary Soft Loans Contributions Retrospective Subsidies Tax Breaks Accelerated Depreciation Refundable and Non-Refundable Loans Producer s legal office must be in Italy/EU The nationality of the film must be Italian Suppliers must be Czech tax registered Production firm must meet production and cultural criteria Accelerated depreciation on equipment used solely in the production of motion pictures. Loans only open Hungarian produced/coproduced films. Loans re-paid over 3 years. Contribution to producers are percentage of boxoffice earnings. 20% of film expenditure on good and services acquired from Czech registered firms Tax breaks up to 20% of costs incurred in Hungary. Accelerated depreciation and corporations tax allowances start at HUF100m ( 400k), not exceeding 80% of tax liability. 11. The Isle of Man provides equity investment, including gap financing and tax credits, to film and TV productions through its Media Development Fund. There are no upper or lower limits on investment with projects considered on a case-bycase basis. 12. The Netherlands offers an investment tax incentive for film investment, if the film is considered a business asset. The deduction varies between 1 and 28% of the total investment and may be applied to an investment of between 2,200 and 301,800. The Netherlands also offers immediate depreciation of the development costs of films but not the films themselves. In May 2014 the Netherlands Film Fund announced the Netherlands Film Production Incentive, which offers 30% cash rebates on eligible Dutch spend for features and feature length animations with a minimum production budget of 1 million euro, and for documentaries with a minimum budget of The maximum grant per application is 1 million The Belgian tax shelter regime for audio visual works offers Belgian investors, that invest a certain amount in recognised Belgian audio-visual works, a partial exemption of their taxable profits. The investor must: be Belgian; not itself be engaged in production of audio-visual works; realise taxable retained earnings of at least 1,500,000 a year; and must be prepared to make an investment for a maximum amount of 500,000. The qualifying investor can then exempt 150% of what has been invested in the audio visual work from its taxable retained 6

8 earnings. This amount cannot exceed 750,000 or 50% of taxable retained earnings. 14. In Ireland, 28% tax relief to increase to 32% (as a tax credit) from 1 January is available for the production costs of feature films, creative documentaries, television drama and animation, provided there is an Irish coproducer who will provide the full range of production services. There is a ceiling of 50 million on qualifying expenditure per project. Film production companies advancing R&D activities may qualify for an R&D tax credit that can be offset against corporation tax liabilities. In addition, the Irish Film Board is allowed to provide production funding on a tiered structure ranging from 100% for projects capable of being delivered for no more than 100,000 down to 25% ( 2 million max) for films with a budget of over 5 million. 15. The Italian Government offers soft loans (to be repaid within 3 years) and contributions (a percentage of box-office earnings) to producers as incentives to encourage the production of films in Italy. The legal office of the film producer must be in Italy or an EU state and the nationality of the film must be Italian. 16. In France, audiovisual companies subject to corporation tax which locate the production of documentaries, fictions or animations mainly on French territory with French or EU participants, can receive tax credits of 20% of the expenses incurred to be set off against corporation tax. Also French residents can deduct 40% (48% in some cases) of the cash they pay to a company, whose exclusive activity is film financing, from their taxable income (up to certain limits). 17. Current Hungarian legislation allows a tax break up to a maximum of 20% of direct production costs incurred in Hungary. Hungary also offers accelerated depreciation for equipment, machinery and buildings used solely in the production of motion pictures as well as a corporation tax allowance on investment for motion picture and video production of at least HUF100 million (around 400,000). The amount of tax allowance in a given year cannot exceed 80% of corporate tax liability. State subsidies allocated by The Motion Picture Public Foundation of Hungary consist of refundable and non-refundable grants, subject to certain criteria. These are only available to Hungarian films or co-production films based on the proportion of Hungarian participation. 18. The Czech Republic offers retrospective subsidies of up to 20% of films expenditure on goods and services acquired from Czech registered firms or firms registered for tax in Czech Republic. Production firms must meet cultural and production criteria (e.g. director or actors are Czech domiciles or are resident in any European Economic Area nation, film concerns an event belonging to Czech or European culture or history). 7 See Ernst & Young Budget 2014 Alert, p.7 available at _Budget_alert/$FILE/EY_Ireland_Budget_Alert_2014.pdf

9 Support for Film and TV Production in an Independent Scotland 19. The tax regime is only one element in the series of factors that producers will take into account in taking location decisions. Scotland has seen a number of recent successes for the broadcasting sector such as the increase in the number of network television productions made in Scotland and broadcast across the UK, from 2.6% in 2006 to 4.9% in 2011 and Scotland becoming a popular film location with films like World War Z and Cloud Atlas. These achievements show Scotland has significant potential to become a world-class and highly attractive location for productions. However, from the variety of incentives offered for film and TV production around the world, it is clear that the industry is both mobile and competitive. An independent Scotland will have a wider range of policy levers at its disposal to ensure that it is an attractive location for productions. 20. The tax incentives currently offered by the UK on personal and corporate taxation in relation to the creative industries would continue in Scotland on independence, through the principle of continuity of law. Scotland s Future: Your Guide to an Independent Scotland sets out how within the first term of an independent Scottish Parliament, Scottish Ministers will look at ways to encourage further development in the sector, through incentives, infrastructural investment and support for development, skills and training. 21. The value of tax relief provided in the UK is lower than in some other countries. For example, Ireland currently offers tax relief for film productions at 28%, which is to increase to 32% from 2015, and has a very competitive corporation tax rate. Likewise, countries such as Canada and New Zealand, which have been successful in attracting production, both offer more generous tax reliefs and cash grants than the current UK system. A further way of providing tax relief is through accelerated depreciation of intangible assets created in the film making process, as practised in the Netherlands and Hungary. Investment by Scottish residents could be encouraged by offering investors tax incentives as in Belgium and the Netherlands. Options such as these would be open to an independent Scotland, as part of the design of a simpler Scottish tax system, taking into account other options such as loan, equity or grant support, explored further below. 22. Whilst the extension of tax relief to high-end TV shows has been welcomed by the industry, the proposed spend of 1 million per hour may mean that high quality TV productions which fall below this financial benchmark will receive no support. Some responses to the Treasury s consultation on the relief suggested that the 1 million per programme hour threshold was set too high and that incentivising this type of production would be unlikely to benefit regions other than London and the South East. 8 8 HM Treasury Creative sector tax reliefs: response to consultation pp , available at: _tax_reliefs_response pdf

10 23. Subject to EU State Aid rules, Scotland could follow the Isle of Man s example and provide equity investment to film and TV productions through a development fund. Alternatively, loans or subsidies could be offered to film or TV producers under certain conditions as is the case in Italy, Hungary and the Czech Republic. 24. Grant support subject to State Aid rules might also be considered. In Ireland, for example, 7% of television licence fee resources are used to allow the Broadcasting Authority of Ireland to run a television and radio archiving programme and to support the Sound and Vision scheme. The Broadcasting Funding Scheme (Sound & Vision II) was established to provide funding in support of high quality programmes on Irish culture, heritage and experience, and programmes to improve adult literacy. The Broadcasting Act, 2009 extended the scheme to offer funding towards programmes dealing with the themes of media literacy and global affairs. The scheme provides funding to independent TV and radio productions in Ireland. A radio station or TV station must agree to broadcast the finished show before an application can be made. For television programmes a maximum award of 50,000 can be made for up to 95% of the total budget, a maximum award of 250,000 can be made for up to 90% of the total budget, and a maximum award of 750,000 can be made for up to 85% of the total budget. Where more than 750,000 is sought, this is negotiated separately. 25. Another possibility would be to target specific categories of programming. For example, media reports 9 indicate that the tax relief for animation has enabled the BBC s CBeebies channel to increase its commissioning of animated programming aimed at children aged six and under. Broader support for high quality children s programming might be one possibility. 26. Any form of support would require State Aid approval by the European Commission and would have to comply with the Communication from the Commission on State Aid for Films and other Audiovisual Works 10, which entered into force on 16 November 2013 and the General Block Exemption Regulation 11 expected to be adopted in July Any form of support would also need to meet broader policy objectives. These include: Additionality: any support should generate additional activity rather than subsidise that which would have taken place anyway ( deadweight ). Targeted grant or equity support can make that easier to achieve than tax incentives. This, though, depends on particular circumstances. Incentives bring in more revenue when they attract production that would otherwise have gone elsewhere. For the UK as a whole, given the relatively buoyant state of production in South East England, some tax reliefs will go to films that would have been made in the UK anyway. Given that an independent Scotland would start from a lower base of around 4% of the UK total production, incentives are more likely to attract new production rather than subsidise production that would have happened in Scotland anyway. 9 E.g

11 Attractiveness: other things being equal, support should be channelled in such a way as to be most attractive to (particularly mobile) investors. Here the certainty of getting a tax relief provided certain criteria are met will generally be more attractive than having to apply for grant or equity support, although efficient administration of grant or equity can help to level the playing field. Fiscal incentives such as tax reliefs respond dynamically to falls or rises in levels of production whereas grant or equity support will generally be capped at a certain level within a financial year. Supporting Economic Growth 27. In addition to providing tailored support to the film and TV industry, the Scottish Government is committed to using the additional economic levers that independence offers to increase the attractiveness of Scotland as a location for investment and for companies to grow their businesses. 28. The opportunity that independence offers for Scotland to obtain a fiscal edge, coordinated with investments in infrastructure, education and skills to ensure that such investments are sustainable, would be a powerful new tool for Scotland and would significantly increase the opportunities available to all sectors of the economy, including in film and TV production. 29. For example, corporation tax is a key economic lever which could encourage investment and support jobs in the Scottish economy. Analysis undertaken by the Scottish Government shows that a three percentage point reduction in the headline rate of corporation tax would, in the long term, increase the level of GDP by 1.4% and increase employment by 27,000 jobs. The use of this powerful policy instrument is one example of how a supportive business environment can be created to support sectors across the Scottish economy. 30. Control over the full range of fiscal and non fiscal powers will also give an opportunity to realise the potential of specific existing and emerging strengths in the Scottish economy. In addition to tax incentives there are other opportunities available to an Independent Scotland that could work to help realise the success of its film and TV production industry. Independence would mean full responsibility for broadcasting in Scotland, including ensuring a broadcasting system which better met the expectations of viewers in Scotland. This would include commissioning and broadcasting and hence providing an enhanced platform for content made by Scotland s film and television production industries. An independent Scotland could also join the Council of Europe s EURIMAGES cinema support scheme a 25 million co-production fund that could be accessed for an annual cost in the region of 200,000. Scotland would also be entitled, like all EU members other than France, Germany, Italy, Spain and the UK, to preferential consideration for funding for screen co-production under the European Commission s Creative Europe scheme, as a state with a smaller production sector. 31. As well as the cultural benefits of encouraging high quality production, support to the sector has the potential to bring economic benefits. For example, HM

12 Revenue & Customs reported that over the Film Tax Relief supported 5.5 billion of investment into 825 British films which have received approximately 800 million in relief HM Revenue and Customs High-end television tax relief, p.1, available at: _reliefs_for_the_creative_sector.pdf.pdf

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