Background:
The perceived inequity of specific provision for the film industry, and the reality of similar reliefs for TV/animation/gaming being provided to companies in these sectors in other countries, gave rise to a broad-based lobbying effort from the creative industries in the run-up to the 2012 Budget.
The UK Government has outlined its commitment to provide world class support to the creative industries and has announced that from April 2013, animation, high-end TV and video gaming will benefit from a new system of tax reliefs.
The new reliefs for these ‘creative industries’ is to be closely modelled (in operation and as regards the level of reliefs provided) on the existing support schemes for the film industry. However they are to be distinct and separately tailored to the requirements of each of the creative industries.
The primary policy aims of the new reliefs were described as having:
A combined aim of promoting production of cultural products while also encouraging investment in the UK,
A wider policy context of supporting growth in a way that is fiscally sustainable, and
The aim of delivering real additional investment without unnecessarily distorting behaviour or adding undue complexity to the tax system.
In introducing these reliefs, the UK government explicitly recognised the competition that UK based businesses in these industries faced from locations with reliefs targeting these sectors and
acknowledged the risk that without targeted support, these industries would lose valuable productions to other countries.
Public Consultation:
Subsequent to the 2012 Budget announcements and in preparation for the introduction of the new scheme of relief in April 2013, the UK Government announced the launch of a consultation process which began in June 2012. This process was intended to canvass the views on the design of these reliefs from companies, individuals and groups which are representative of the industry.
For each of the three named creative industries, a separate working group was also established with Government and industry representation to work on the details of the relevant sector specific reliefs.
It is intended that these groups would report back in time for draft legislation to be published in Autumn 2012.
In coming up with these detailed designs, a number of principles have been established which the sector specific reliefs will need to observe:
Effectiveness - The reliefs must be effective at delivering cultural and economic benefits.
Affordability - The changes must be affordable, in line with the Government’s objective for long term sustainability.
Simple and straightforward to administer - The new reliefs should not result in unnecessary administrative burdens.
Sustainable and not open to abuse - These reliefs should be designed to be effective for the longer term and should not create substantial additional avoidance opportunities.
Compliance with EU State aid rules - the new reliefs will need to gain State aid approval from the European Commission.
High-End TV:
The UK television and radio industry employs over 113,120 people across 7,960 organisations, exported
£2.18 billion of services in 2010 and is home to the world’s oldest broadcaster.
UK TV has become an export orientated business within the wider UK economy with annual
international sales of UK TV related DVD’s amounting to over £110m, and UK sales of TV programmes to the US amounting to over £500m in 201034.
Within the high –end TV working group established as part of the consultation, a number of areas of focus have been identified which need to be addressed in order to allow the TV relief to be agreed.
Whilst some of these areas are common to the other creative industries, others are specific to high-end TV productions.
Agreeing what are the direct costs of production and what should be excluded (e.g. costs of finance and marketing)
Agreeing what should be included under ‘core expenditure’
Defining high-end television in a simple, consistent and usable definition which clearly excludes activity that would take place in absence of any relief.
Agree how co-productions are going to be treated
Agreeing a monetary threshold for high-end TV based production costs per programme hour (pitched at £1 million per hour)
Agreeing production types which are high end (drama, comedy etc.) and those which are not (current affairs, discussion, variety, panel shows etc.)
34UK Television Exports Survey 2010, PACT
Animation:
In their submission prior to the 2012 Budget, Animation UK provided considerable detail on the nature, extent and value of the animation sector to the UK. Key figures included
The fact that there are 600 companies directly involved in animation in the UK The industry employs over 4,700 people and has annual revenue of over £300m Over 70% of animation activity is taking place outside London
Within the Animation working group which has been established as part of the consultation, a number of areas of focus have been identified - again some of these areas are common to the other creative industries, others are specific to animation.
Defining animation – There is a need for a definition that is workable in legislation, recognised in the animation industry and which is in line with State Aid guidelines.
o Working Definition - ‘A sequence of images in 2 or 3 dimensions created by recording still images or objects, one frame at a time with incremental changes in position, form or appearance between frames to create the impression of movement’
Identifying ‘core expenditure’ – There is a need to recognise that a significant proportion of the costs of producing an animated programme may be early stage but also necessary to distinguish between speculative expenditure and expenditure on a project with identifiable end product.
Agreeing how to deal with mixed content programmes – where productions include live action, initial proposal is to allow productions where expenditure on animation make up the vast majority (75%+) of the production costs (animated programmes)
Gaming:
The UK video games industry has been estimated to contribute £1 billion to GDP each year. 2010 VAT receipts generated £577.5 million for the Treasury35. There are over 300 games companies currently operating in the UK and UK based game developers are very export focussed with 95% exporting some of their products36.
The consultation with the gaming sector that a number of challenges arise from the very differing business models which can be adopted in the industry. As with the other working groups, a number of specific priority areas have been identified which need to be addressed.
Agreement on how to define a ‘video game’ in a consistent and comprehensible fashion – the current proposal is to adopt the model used in the French video games tax credit.
Agreement on which tax relief model to use – either a model based on the specific French scheme or a model based on UK R&D Credits
Agreement on what should be included in ‘core expenditure’ – focus on development costs and the exclusion of debugging and maintenance costs and how ‘core expenditure’ could be
35Association for UK Interactive Entertainment
36 Next Gen. Transforming the UK into the world's leading talent hub for the video games and visual effects industries, NESTA, February 2011
expanded to include further significant development of a game after the game has been delivered.
How to accommodate both firms which are product-based’ and hence focussed on the development and production of major titles and firms which are more ‘service-based’ and hence focused on mobile apps and online games.
How to provide a support which fits the requirements of all quarters of the industry – both multinational producers and smaller independent developers
7.7 Summary of Key Aspects of Relief
Key Characteristics of UK Film Tax Relief
Investor participation is not possible – FPC’s onlyA percentage of above the line costs are allowable under the use and consume rule Relief is provided either as an enhanced tax deduction or as a refundable tax credit There are no caps on the value of the relief provided
The majority of the value of the reliefs is enjoyed by a small number of large productions which originate with the major US Studios
The Headline Numbers
Cost of relief in 2011 £200m (up from £95m in 2010) Number of Films Supported 2011 274 productions
Value of UK Film expenditure 2011 £1,258.9m
Film Tax Relief Claims since 2007 1,080 (to May 2011)
8 Australia
8.1
Overview of Industry and Support
With a wide range of possible locations to shoot in, Australia has been selected as the location for a considerable volume of international production – both feature films and TV shows. In 2009, Australia was ninth in the world in terms of production investments in feature films with $273m spent.
It is estimated that the total value of feature film and television production in 2009/10 (for both Australian and foreign) was $731m with Australian documentary production considered to be $102m37 of the total. In 2010, Australia produced 37 feature films.
The Australian audio-visual industry is a large employer in the country, with approximately 45,000 people employed in the industry, with the majority (15,575) being employed in television
broadcasting.38
The Australian Government’s film and television initiatives in the 2011-12 Budget amount to a €56m funding boost over four years39.
To assist with the film production industry, Australia has a number of taxation credit system which are governed by the Division 376 of the Income Tax Assessment Act 1997 (ITAA 1997). The tax credit system in effect can be divided into three main tax credits namely the location tax offset, the producer tax offset and a post digital visual effects tax offset. The Australian tax credit system is administered by Ausfilm.
In addition, there are also other incentives which are operated by Screen Australia which encourage the development of smaller scale productions and documentaries.
Australia also has specific regional support funds to attract film production. We have summarised some of the key features of some of the regional initiatives below, however, the main focus of this summary is on the national tax credits which are available to producers in Australia.
It should be noted that production companies can only access one of the three main federal tax credits. These credits can be combined with some of the regional tax incentives.
8.2 Specific Film Industry Support
Federal
The Australian Screen Production Incentive Credit was introduced by the Australian Government in 2007. The incentive includes three main supports namely, the Producer Offset, the Location Offset, and the Post Digital and Visual Effects Offset.
37 Screen Australia website
38 Screen Australia website
39 Parliament of Australia, Department Library
The Producer Tax Offset (PTO)
Producer Offset was introduced to encourage support for the Australian screen production industry.
The Producer Offset provides a refundable tax offset of between 40% (generally films) and 20%
(generally television) depending on the type of production) on Qualifying Australian Production Expenditure (QAPE).
The Location Tax Offset (LTO)
The Location Offset is designed to ensure Australia remains competitive in attracting shoots for large-budget film and television productions, and is aimed at providing increased opportunities for Australian casts, crew, post-production companies and other screen production service providers to participate in these productions.
The offset provides a 16.5% rebate calculated on Qualifying Australian Production Expenditure (QAPE).
Post Digital and Visual Effects Production - (“PDV”) Offset
The PDV Offset is aimed at enabling the Australian visual effects, post production and animation sector to continue to develop its reputation as both a quality but low cost service. The PDV offset provides a rebate on Qualifying Australian Production Expenditure (QAPE) of 30%
A summary of the key features of each of the Australian federal reliefs is outlined in the table below.
Table 15: Australian Federal Reliefs summary
The Producer Offset The Location Offset Post Digital and Visual Effects (PDV) Offset Provides a rebate on Qualifying
Australian Production Expenditure (QAPE) subject to expenditure thresholds
40% - theatrically released feature films, including documentary, animation and IMAX
20% for single episode dramas and documentary (including features released only on DVD or on-line), television drama, or documentary series / seasons and short form animation
There also many regional incentives in place in Australia, across the various States. For the purpose of this exercise, New South Wales has been taken as an example.
New South Wales offers many incentives which are operated through Screen NSW.
The incentives are to encourage early and advanced stage levels of film production and to “make NSW the premier destination for screen production40”. Screen NSW is the authority in the region established to administer the supports which can be broken down into the following:
Development Early and Advanced Stage Development incentives and also various supports for training and relevant workshops
Production Funding for projects produced or post-produced in NSW and which have the rest of their finance in place in order to maximise cultural and economic benefits to the state through support of NSW screen projects.
Production funding for short term cash-flow requirements and medium term loan finance are also available.
Interactive Media Fund (IMF)
New guidelines have recently been introduced in relation to the funding.
The IMF is for creative digital content projects that are commercially oriented and destined for distribution on web-enabled platforms or devices and interactive video game consoles.
The Fund focuses on interactive content, a key element in innovation with the ability to benefit other sectors such as health, finance and education
Career Pathways
Assists in the career development of film production personnel.
Industry and Audience Development
Professional development, annual events including seminars, conferences, workshops, professional mentorships
Other Incentives
Incentive such as the NSW Film & Television Industry Attraction Fund (FIAF) and the Regional Filming Fund (RFF) - offer incentives to production companies to attract film projects to the State. The attraction fund is discretionary and incentives are provided in the form of rebates and are determined on a case-by-case basis, taking into account demonstrable benefits including; job creation, production expenditure, skills development and technology transfer.
In 2010/11 Screen NSW approved Production Finance of $9.6m in 48 approved screen projects, which generated $143 million expenditure in NSW. For every $1 invested $15 has been expended in the State41.
8.3 Scope of Activity Eligible for Relief
The following sections summarise the main provisions and characteristics of the three Federal relief programmes.
Qualifying Production Companies
Table 16 Qualifying Production Companies - by Support Type
The Producer Offset The Location Offset Post Digital and Visual Effects
40Screen NSW Annual Report 2010-11
41Screen NSW, Annual Report 2010-11
(PDV) Offset Company must be an Australian
company, or a non-resident have either carried out, or made the arrangements for carrying out all the activities necessary for making the production
Australian resident company, or a foreign company with an Australian Business Number that is operating with a permanent establishment in Australia
The applicant must be the company that is responsible for all the activities involved in making the film in Australia
Australian company, or a non-resident company with a permanent establishment in Australia or a foreign company with an Australian Business Number that is operating with a permanent establishment in Australia
The company must be
responsible for all the activities that were necessary for PDV production in Australia.
Qualifying Productions
Table 17: Qualifying Productions - by Support Type
The Producer Offset The Location Offset Post Digital and Visual Effects (PDV) Offset
Demonstrate Significant Australian Content (SAC), and Meet minimum expenditure thresholds relevant to the type of production eligible for the Producer Offset
Eligible productions that qualify include feature films, telemovies, television series - (including documentary, reality, and animation) Films with a minimum total QAPE of A$15 million Television series with an average QAPE of A$1 million per hour of the finished production
Productions do not need to be filmed in Australia
Qualifying Expenditure
Table 18 - Qualifying Expenditure - by Support Type
The Producer Offset The Location Offset Post Digital and Visual Effects (PDV) Offset
40% for theatrically released feature film productions, including documentary, animation and IMAX
20% for single episode dramas and documentary (including features released only on DVD or on-line), television drama or documentary series/seasons and short film animation
The Producer Offset requires minimum levels of QAPE linked to whether the production is a feature film, drama, Australia at the time they are used in making the film or programme
Qualifying Australian Production Expenditure relates to goods and services provided in Australia The use of goods in Australia at the time they are used in making the production relating to:
- Creation or editing of audio or visual effects
- Activities that are reasonably related to these activities
- Salaries, per diem’s and travel for PDV related staff and crew as well as rental of relevant facilities and equipment
8.4 Operation of Reliefs
General provisions
All the federal incentives are paid in the form of cash rebates to the producer. The incentives can be combined with State and Territory government incentives and payment is issued through the Australian Taxation Office (ATO).
Timing of the Tax Repayment
Before repayment of any of the tax credit, the applicable company must obtain a final certificate in relation to the QAPE from Screen Australia. On issue of the final certificate, it must be provided to the Australian Taxation Office with the appropriate tax return as detailed below:
Table 19 Timing of Relief - by support type
Producer Offset Location Offset Post, Digital and Visual Effects Production
Final Certificate with the claimant company’s tax return at the end of the financial year in which the production is completed.
The ATO will provide a refund of a tax credit where the amount exceeds the amount of any existing tax liabilities owed by the applicant
The ATO will provide a refund of a tax offset where the amount
The ATO will provide a refund of a tax offset where the amount exceeds the amount of any existing tax liabilities owed by the applicant company
In general the repayment generally takes place three weeks from lodgement of the annual income tax return with the Australian Taxation Office in conjunction with the receipt of the Final Certificate from Screen Australia.
Monetisation of Tax Credit
The monetisation of tax credit is available under a Producer Offset loan and is available from Australian Export Finance & Insurance Corporation to a production company to finance eligible Australian film, documentary and television productions with international distribution agreements.
The loan is specifically designed to help smaller productions that are eligible for the Producer Offset but may have difficulty in attracting finance in the commercial market. EFIC may also be able to assist in the financing of larger productions, subject to additional due diligence. EFIC will lend an amount equal to up to 90% of the estimated Producer Offset Rebate, based on the Provisional Certificate. The minimum loan amount is $100,000, and the maximum is $500,000
Other
Recently the Australian Producer Offset was improved to encourage the production of low budget documentaries which otherwise would not qualify for the minimum QAPE levels.
Screen Australia will now directly fund such documentaries through a separate Producer Equity budget estimated to be approximately $2m/$3m budget per year.
8.5 Relief Caps or Restrictions
The following caps and restrictions are relevant to each of the three Federal reliefs:
Caps on Supports
Table 20 Caps on Support by type
Producer Offset Location Offset Post Digital and Visual Effects (PDV) Offset
There is no cap or sunset clause on the incentives
There is no cap or sunset clause on the incentives
There is no cap or sunset clause on
There is no cap or sunset clause on