UK Film Tax Relief and Co-Productions

Transcription

1 UK Film Tax Relief and Co-Productions

2 WHY CO-PRODUCE? 1. Creative Reasons -script; location; cast -working with other producers/film cultures -complementary facilities/workforces 2. Commercial Reasons -if UK producer: access to UK tax relief on UK spend (NOT full cost of production) -accessing national/regional benefits, tax credits, labour rebates in co-producing countries [Nowadays, this is primary reason to co-produce] -greater value from co-producing countries (enhanced distribution deals) -inability to fund from national sources (e.g. Scandinavia) -local tax reasons (Germany) -other benefits: visas/work permits; import/export duties 2

3 UK FILM TAX RELIEF (sections Finance Act 2006) 3 conditions: -intended theatrical release -"British Film" -minimum 25% UK expenditure A UK tax-paying "Film Production Company" needs to apply for tax credit 3

4 CONDITIONS OF FILM TAX RELIEF 1. Intended theatrical release -"significant proportion of earnings" (prefer UK release, but not necessary) -intention at end of relevant accounting period 2. "British Film" -certified by DCMS under Schedule 1 to Films Act Cultural Test: 16/31 points (but NOT for co-productions) -qualifying co-production automatically a "British Film" (Paragraph 4(5) of Schedule 1) -Co-production outside terms of Treaties/Convention will not be "British Film" unless it meets Cultural Test 4

5 CONDITIONSOF FILM TAX RELIEF (CONTINUED) 3. Minimum 25% UK expenditure incurred by the Co-Producers - 25% of "core expenditure": -pre-production, principal photography, post-production (NOT development, financing, marketing costs) -"UK expenditure": incurred on goods and services used or consumed in the UK -if co-production, UK expenditure incurred by "the co-producers" (NOT just UK co-producer) 5

6 "FILM PRODUCTION COMPANY" (FPC) -special definition if co-production: (s32(4) Finance Act) (i) (ii) a co-producer, which makes "effective creative, technical and artistic contribution to the film" ( no UK "financial co-producer") -if more than one UK company, FPC will be company "most directly engaged" in such activities -if overseas co-producer "most directly engaged", UK co-producer will still be FPC 6

7 CALCULATING FILM TAX RELIEF -in co-production, UK Tax Relief determined by UK core expenditure incurred by UK co-producer -maximum of 80% of UK co-producer's core expenditure - any UK core expenditure incurred by other co-producer is disqualified -this is a disincentive to co-produce under Treaty/Convention (if Cultural Test still applies), unless required to receive benefits in other co-producer country 7

8 CURRENT UK CO-PRODUCTION TREATIES -European Convention on Cinematographic Co-Production (42 member states) -7 Bilateral Treaties: France, Australia, Canada, New Zealand, South Africa, Jamaica, India -New Treaties: Morocco, Israel/Palestine (signed but not ratified) British Film Certification Co-Production Guidance Notes (April 2011) (BFI website) 8

9 BILATERAL TREATIES 1. Co-Producers - managed and controlled in UK (not "letterbox" company) - limit under Treaty? (not >4: South Africa/Jamaica/India) - no common ownership, management or control (Australia/NZ) - no common management or control (France) (Jamaica/South Africa/India: OK if approval of authorities) - New Bilateral Treaties (e.g. India) require each co-producer (i) play active role throughout production (including production planning and decision making); (ii) assume responsibility for practical/financial arrangements for making film; (iii) directly negotiate, contract, pay for rights, goods and services 9

10 BILATERAL TREATIES (CONTINUED) 3 types of Co-Producers: -"Party Co-Producer": producer from Treaty country -"Third Party Co-Producer": producer from country with which one/both of Party Co-Producers' country has a separate Treaty -"Non-Party Co-Producer": producer from country with which neither Party Co-Producer country has a separate Treaty Canada, South Africa, Jamaica, India Treaties allow Non-Party Co-Producer Canada: needs to be Commonwealth/EU Non-Party Co-Producer South Africa/Jamaica/India: 20% cap on Non-Party Co-Producer finance/creative contribution/location filming 10

11 BILATERAL TREATIES (CONTINUED) 2. Multilateral Agreements If Treaty with Third Party Co-Producer, plus meet requirements of both Treaties, plus approval of all 3 authorities qualify in countries of Party Co-Producers and Third Party Co-Producer If Treaty with Third Party Co-Producer, but do not meet requirements of Third Party Co-Producer Treaty only qualify in countries of Party Co- Producers 11

12 BILATERAL TREATIES (CONTINUED) 3. Financial Contributions Minimum/maximum financial contribution in each Treaty: France, Canada, Jamaica, New Zealand, South Africa, India: 20% minimum (Jamaica/South Africa/India: exceptional 10% minimum) Australia: 30% minimum -normally, separate sources of finance but single financier OK (e.g. studio model), if allocation to co-producers -one co-producer can provide finance to another co-producer -national benefits only part of that co-producer's contribution -India Treaty: "payments in kind" may count as financial contribution 12

13 BILATERAL TREATIES (CONTINUED) 4. Film-Making Contribution Film-making contribution of Party Co-Producers expected to be "in proportion" to financial contribution (India Treaty: "approximately in proportion") (Note: "UK film-making contribution" for co-productions different from "UK expenditure" for UK tax relief) -"film-making contribution" = % of budget spent on goods, services, locations, facilities and personnel 13

14 BILATERAL TREATIES (CONTINUED) -Excluded costs : acquisition/licensing costs : overheads : completion bond fees : insurance : delivery and marketing costs : financing costs : participations/deferments (unless guaranteed within 4 months of completion) : fees reinvested into production -reasonable costs for services/facilities -if BFI believes certain costs too high (e.g. producer fees/overhead), can substitute lower figure for tax relief purposes 14

15 BILATERAL TREATIES (CONTINUED) 5. Finance-Only Co-Productions (minority co-producer: contributes "finance only") -OK: Treaties with France, South Africa, Jamaica, India (not Australia, NZ, Canada) -not UK co-producer if seeking UK tax relief: no "effective creative, technical and artistic contribution" -minimum/maximum contributions (e.g. South Africa: min 10%/max 25%) -annual limit? (South Africa: 3 per year) -prior approval of authorities 15

16 BILATERAL TREATIES (CONTINUED) 6. Rights, Revenues, Receipts -expectation that rights etc shared by Co-Producers to reflect financial contribution (France, Canada: strict application by Telefilm/CNC) -India Treaty: "rights, revenues, prizes" shared as agreed by Party Co- Producers 7. Credits - Co-production credit on screen/publicity: e.g. "A UK/South Africa Co- Production" 16

17 BILATERAL TREATIES (CONTINUED) 8. Filming Location -all work in countries of Party Co-Producers or Third Party Co-Producer (or Non-Party Co-Producers, if allowed) -majority of work in country of majority financier (unless competent authority approves otherwise) -authorities may allow filming in non-co-producing country if necessary for film-making (e.g. geographical features) BUT no set construction -third country spend (i.e. outside UK, EEA, other Party/Third Party Co- Producer) not >30% budget (20% max: South Africa, Jamaica, India) 17

18 BILATERAL TREATIES (CONTINUED) 9. Personnel -all work carried out by nationals/residents of Party Co-Producers/Third Party Co-Producers/EU/EEA (or SADC States (South Africa) or CSME States (Jamaica)) -Isle Of Man/Channel Island nationals and other "British Subjects" are OK -authorities may allow other personnel if necessary for script/financing reasons: (France: leading artists/director Australia/NZ: performers Canada: leading performers Jamaica/South Africa/India: non-specific personnel) 18

19 BILATERAL TREATIES (CONTINUED) -if authorities approve third country location filming, third country residents/nationals are OK if necessary for location work (e.g. extras, lower grade crew) provided not key grade crew. NB bad spend limitations -if citizen of one co-producing country is also resident of other co-producing country, residency prevails -provide for residency/citizenship in contracts 19

20 BILATERAL TREATIES (CONTINUED) 10. TV Co-Productions Treaties with Canada, France, Australia, New Zealand 20

21 EUROPEAN CONVENTION 1. General -42 signatories (Albania: Jan 2010!) -intended to encourage multi-lateral European co-productions -application 3 or more co-producers in Convention countries 3 or more co-producers in Convention countries, plus one non- Convention co-producer* 2 co-producers if no Bilateral Treaty (e.g. UK/Ireland; UK/Germany) * BFI approval required if non-convention co-producer plus 2 Convention coproducers 21

22 EUROPEAN CONVENTION (CONTINUED) 2. Co-Producers -UK Co-Producer managed and controlled in UK -track record in production -no common management or control 22

23 EUROPEAN CONVENTION (CONTINUED) 3. Financial Contributions -Multi-lateral: 10%/70% -Bilateral: 20%/80% -Non-Convention Co-Producer: 10%/30% -Financial-only co-productions: -promotes European identity -10%-25% financial contribution -limited participation in film-making by financial co-producer 23

24 EUROPEAN CONVENTION (CONTINUED) 4. Film-Making Contribution -film-making contribution of co-producer proportional to financial contribution -Same "excluded costs" as Bilateral Treaties 5. Rights, Revenues, Receipts -shared by Co-Producer per financial contribution 6. Credits - Co-Production credit on screen/publicity 24

25 EUROPEAN CONVENTION (CONTINUED) 7. "European Cinematographic Work": 15 out of 19 points to EU nationals, studios, etc. Director 3 DP 1 Writer (points can be shared) 3 Sound Recordist 1 Composer 1 Editor 1 Actor 1 3 Production Designer Actor 2 2 Studio/location 1 Actor 3 1 Post-production 1 1 (No of days) 19 points less than 15 points maybe OK if "promotes European identity" (BFI: e.g. European story; location; characters) 25

26 EUROPEAN CONVENTION (CONTINUED) 8. Filming Location -any country (subject to points requirements) -up to 30% budget spent on third country locations (including personnel) -no third country post-production without authority approval 26

27 EUROPEAN CONVENTION (CONTINUED) 9. Personnel -artistic, performing personnel mainly nationals/residents of co-producers -technical and craft team cannot include "third country" nationals/residents (non-co-producing; non EEA) unless exceptional circumstances (e.g. third country location filming for lower grades) -other "third country" personnel (e.g. secondary US actors) OK, provided 15 points 27

28 APPROVAL PROCESS -BFI Certification Unit assessing co-production application (makes recommendation to DCMS) -Joint decision of DCMS/other authorities -Preliminary discussions re discretionary issues -Provisional application: applications expected no later than 28 days before principal photography if DCMS minded to reject, opportunity to amend DCMS issue letter confirming provisional approval plus interim British Film Certificate (valid for 3 years) 28

29 APPROVAL PROCESS (CONTINUED) -Notify authorities of significant changes -Final Application after completion (i.e. ready for delivery) confirms co-production in accordance with provisional approval accompanied by auditor's production cost statement British Film Certificate (usually within 28 days of application) Submit claim to HMRC for tax relief (currently approx. 25% paying relief within 28 days of tax filing) 29

30 CO-PRODUCTION AGREEMENT -Approval of competent authorities -Key contractual provisions: agreement to apply to national authorities financial contribution (+ payment dates) overspend/underspend film-making contribution underlying rights copyright/distribution rights (ancillary rights) allocation of revenues approvals/consultations (key creative & business decisions; day-to-day decisions) third party contracts 30

31 CO-PRODUCTION AGREEMENT (CONTINUED) -Key contractual provisions (continued): local taxes (VAT) insurance accounting/audit ownership/access to materials subsequent productions refusal of provisional/final approval prohibition of exhibition termination (breach/insolvency) assignment to third parties 31

32 CO-PRODUCTION STRUCTURE Distributors National Public Funding Sales Agent (on behalf of Co-Producers) Bank Finance National Public Funding Equity Sales Agreement Equity Loan Loan Majority Co-Producer Co-Production Agreement Minority Co-Producer Third Country Cast/Crew Local Cast Local Crew Local Cast Local Crew 32

33 PRACTICALITIES OF CO-PRODUCTION -cost of filming (transporting cast/crew/supplies) -choice of co-producer (due diligence) -early agreement on fees, revenues, credits, approval rights, day-to-day control -understand local industry: tax system (WHT, VAT) immigration distribution benefits? 33

34 ALTERNATIVES TO CO-PRODUCTION 1. Production Services Agreement British Film (under Films Act) Film Production Company hires overseas entity under PSA Best solution -if minority overseas spend -if no third country benefit from co-production qualification (Full tax credit; not limited, as in co-production) 34

35 ALTERNATIVES TO CO-PRODUCTION (CONTINUED) 2. "Unofficial Co-Production" Co-production outside auspices of Bilateral Treaties/Convention Third country reasons (e.g. German withholding tax) (if insufficient spend for UK tax credit) 35

36 Wiggin LLP 95 The Promenade Cheltenham Gloucestershire GL50 1WG Tel: / Fax: For further information, contact David Quli: [email protected]; or Charles Moore: [email protected] 36