Impact of Fiscal Incentives for Film


The Film Tax Relief (FTR) has become an established part of film financing structures since its introduction in January 2007. A recent report (‘the Report’) by Olsberg SPI (http://www.o-spi.co.uk/wp-content/uploads/2015/02/SPI-Economic-Contribution-Study-2015-02-24.pdf) sets out the economic benefits of the scheme on the UK film industry and the wider economy. I set out in this article the key findings of that report setting these findings against the current fiscal incentive landscape within Europe.

There are three main types of schemes – tax shelters, rebates and tax credits. Tax shelters provide High Net Worth Individuals with the opportunity to offset investments in qualifying schemes against their tax liabilities. Rebates relate to production spend rather than investment and are generally payable on independent certification and represent a percentage of the qualifying spend. Tax credits are similar to rebates but rather than being paid out are allowed to be offset against the producer’s tax liabilities when the corporate annual return is filed. The UK moved from tax shelter to tax rebate following perceived abuse of the schemes such as film partnerships and sales and leaseback. The UK has the option of an enhanced tax credit but since the inception of the scheme there has not been one application for a tax credit. This new methodology has provided a resolution to the ‘leakage’ issue and supported a more self funding structure. Such structures have been mirrored throughout Europe as only 6 of the 21 schemes extant in January 2015 are tax shelter schemes.

In the UK and in Europe there has been a growing recognition of the creative economy. The consequent political support has led to the continued introduction of new schemes (within the last year Lithuania, FYR Macedonia, the Netherlands and Slovakia have all introduced fiscal incentive structures with Finland, Norway, Poland and Serbia giving the matter serious consideration). Such schemes have been demonstrated to increase production levels (the production spend in European countries with incentive schemes comprises 0.06% of GDP compared to 0.01% of GDP for those without) and capacity utilisation which generates various economic benefits and improves productivity. However, governments need to be mindful that a lack of available capacity following introduction of incentive schemes may risk cost inflation. There is generally growth in employment and an increase in crew mobility and skill improvements. The UK has no annual spending cap which allows it to maximise its ROI, although certain other territories do impose an annual cap. For smaller territories this may be to avoid a bubble as it allows the industry to grow at a manageable pace.

Incentives generally deliver strong ROI performance with almost all the European incentive structures providing a greater return to the government in tax revenues than the cost to operate, whilst also providing benefits to the wider economy in areas such as tourism and exports. The Report calculates that the direct impact of the UK FTR is the employment of 39,800 full time equivalents (FTE) staff and £1.4b of Gross Value Added (GVA) to the economy, the standard measurement of economic impact. This led to £431m of tax revenue. When considering the total value chain impact (including multiplier effects) the UK film sector generated £2.9bn of GVA, £875m of tax revenues and 80,300 FTEs. This means that FTR generates a GVA of £12.49 in direct and multiplier effects per every pound of tax relief granted providing the Treasury with £3.74 in additional tax revenue for each pound of FTR granted after deducting the level of production that is estimated to have occurred in the absence of FTR. Of the European schemes only Ireland returned less in tax revenues than the amount of relief given (probably the reason for the switch from a tax shelter scheme to a tax credit basis in January 2015)

The spill over benefits (for 2013) attributed to the UK film industry are estimated to be £840m from tourism (out of the £21bn of tourism spend), £226m in merchandise sales in the UK and £717m from the placement of the UK on screens around the world. These are estimated to generate a total of £751m GVA, 17,000 FTEs and £224m in tax revenues. Whilst there are many assumptions within these calculations there is clearly significant benefit derived from all of these factors.

The UK film sector is also a source of significant inward and domestic investment. Whilst much of this has focussed in and around London, there has also been infrastructure investment in the rest of the UK such as those in Belfast, Bristol, Salford and Cardiff. High occupancy at these locations and the continued investment, especially by international studios, reflects the competitiveness, stability and success of the FTR scheme.

In conclusion, the FTR in the UK provides significant economic benefits to the economy providing employment, increasing productivity and generating net tax gains – even Margaret Hodge and her moral tax crusaders could not complain about this tax scheme.

#Film #FilmTaxCredit

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