• BDO IRELAND - Roll up for the film tax breaks
Article:

BDO IRELAND - Roll up for the film tax breaks

03.09.16

Original content provided by BDO Ireland

Next to agriculture and renewable energy, no sector of the economy is more cosseted by taxpayers than film production, writes John Kinsella, Business Plus. Con Quigley, BDO Partner, contributes.

Irish filmmakers and producers of TV content won’t get out of bed in the morning unless there’s some sort of tax break or grant waiting for them at the breakfast table. And the more the industry's success is trumpeted, the louder the clamour becomes for more taxpayer assistance.

The Irish Film Board, which recently got round to publishing its 2014 annual report, claims that Irish films, such as Room, Brooklyn, Sing Street, Love & Friendship, Song of the Sea and The Lobster, have grossed $140m at the worldwide box office in 2015/16. Now the Board is demanding ‘immediate restoration’ of IFB funding to €20m so that it can increase grants to filmmakers, which in 2014 amounted to €ll.2m.

The IFB has backed up the Audiovisual Federation, a sector of lobby group Ibec. Federation director Torlach Denihan says the film sector momentum presents Ireland with an ‘unparalleled opportunity’ to further develop the recognition which has been achieved on an international level.

“As an immediate measure the Irish Film Board’s capital funding allocation must be restored to €20m in the forthcoming budget,” says Denihan. “Funding should be benchmarked on an annual basis against similar agencies in other jurisdictions so that indigenous talent is leveraged and international investment is attracted.”

Denihan is also concerned about television licence fee evasion. This most regressive form of taxation goes to RTE, which then kicks back €10.5m to the Broadcasting Authority, which doles out grants to mostly visual and some audio programme makers.

So that’s around €20m annually as a starting point of taxpayer and consumer grant aid for producers of drama, animation and documentary output. In addition, film producers benefit front incentives that deliver a tax refund of up to one-quarter of their eligible production costs. The cost of this incentive in 2015 was €17-5m and it looks set to escalate sharply this year.

Among the major beneficiaries of the film tax credit in 2015 were TV cultural landmarks Red Rock, Ros na Run and Skinner Boys. Unlike the IFB and BAI grants, the tax incentive is open to overseas companies too, and is designed to attract more of them to make movies and TV dramas in Ireland.

Until Finance Act 2013, the tax incentive for film production revolved around individual investors securing a tax break on their film investment. Even before the financial crisis, the tax benefit to high earners stuck in the craw of successive ministers for finance.

It was curtailed before being scrapped by Michael Noonan, who ignored industry pleading to leave well enough alone. One rationale cited by the Department of Finance for reforming the incentive was to remove high income earners from the scheme ‘in the interests of fairness’.

The replacement tax scheme, still called Section 481, means companies can potentially get an Irish tax refund up to 32% of 80% of their eligible production costs, in effect 25.6% of the costs incurred in Ireland. In April 2016, the eligible production cap - expenditure on Irish goods and services as part of the overall outlay on the film - was raised from €50m to €70m.

According to Con Quigley, partner in accountancy firm BDO, a film finance specialist: “This producer credit support brings Ireland into line with other jurisdictions, such as the UK, France, Australia and Canada, and is bolstered by Ireland’s extensive double taxation treaty network. This means that tax paid on income in one jurisdiction is offset against similar taxes that may arise in other jurisdictions within the treaty network.

“Very cleverly the new law also means that Ireland can now directly make an attractive offer to major overseas companies, who themselves are now much more involved in cross-border tax planning anyhow. Combined with the general efficiency of the Irish economy as a base for overseas investment and continued competitive cost of labour, Ireland is seen as being very attractive for the industry,” says Quigley.

In the domestic setting, S.481 and IFB/BAI grants are effectively a taxpayer-funded employment subsidy for actors, directors, riggers, caterers, drivers, make-up artists and all the other activities associatied with TV and film. The economic case for the annual subsidies is buttressed by totting up the tax take the state gets back through income and VAT taxes, not to mention the ‘savings’ of taking some of the participants off the dole.

For most indigenous producers, there never seems to come a point where they can stand on their own feet without hand-holding by taxpayers. Now that S.481 is a demand-led scheme, they never will. 

Whatever the merits of subsidising Element Pictures forever to chum out soaps, or Telegael to churn out kids cartoons, the new guise S.481 will be beneficial to the economy if it attracts more overseas players to Ireland.

The largest tax credit handed out so far in 2016 relates to the Sky/Showtime series Penny Dreadful (€10m to €30m tax credit, according to Revenue), while a new season of Vikings (tax credit of €2m to €5m) is another project that would not be shot in Ireland without the tax break.

On the way to Netflix is The Siege of Jadotville, a film about the Irish Army’s illfated deployment in the Congo with the UN in 1961. The tax relief for the movie is currently estimated by Revenue to be between €lm and €2m. “The more production here, the more people gain experience and the more attractive the talent pool is,” says BDO’s Con Quigley.

In between all the dross that’s churned out, sometimes tax credits have the merit of helping to finance worthwhile drama. Currently showing on Thursday evenings on TV3 is Gerard Barrett’s Smalltown, starring Pat Shortt. Made by Blank Page Productions, the three episodes had a production budget of €946,000, with tax relief amounting to €218,000, or 23% of the budget.

Smalltown had a cast of 11, with a crew of 53 and another 16 or so people involved in production and post-production. The budget also had to stretch to various suppliers of kit and professional services. This contemporary drama, with a focus on rural Ireland and the theme of emigration, has definite cultural merit that taxpayers can buy into. Little Grey Fergie, with tax relief of €1.3m, does not.

Originally published by Business Plus, September 2016.