More tax woes for U.K. producers

New ruling would cap amount raised under EIS

LONDON -- U.K. film producers were hit with a second tax clampdown in as many weeks Wednesday as the Chancellor of the Exchequer Gordon Brown delivered his annual budget speech.

While Brown told a packed House of Commons here that he wants to put the creative industries at the heart of fiscal policymaking, the devil was in the details for the movie industry.

The issued policy documents contain a new ruling that puts a cap on the amount of money producers can raise under Enterprise Investment Schemes at £2 million ($3.9 million) a year. The previous EIS limit was £8 million ($15.7 million) a year.

The new ceiling is not expected to take effect until the new Finance Act is made law in June or July, giving the industry a window in which to make alternative budget arrangements.

Such EIS structures have been a focus of interest for producers searching for tax-efficient plans to attract investors to film production here following recent tax clampdowns (HR 3/2).

Producers had been eyeing EIS structures as a way of raising money for slates of projects. Indeed, a trio of top-flight indie shingles -- Samuelson Prods., Ecosse Films and Recorded Picture Co. -- announced plans in February to raise investment cash under a plan that would see them tapping the new tax credit system introduced by the government Jan. 1 as well as the Enterprise Investment Scheme.

The three companies were hoping to raise $15.7 million each by the end of June, which will not be possible under the new EIS limits.

Insiders said that a handful of other production financiers, from Baker Street Media and Future Films to Prescience and Scorpio Films, had been looking to the EIS to help access tax-sheltered cash.

According to sources close to the government, the EIS restriction was not aimed at movie producers specifically. Sources close to the Revenue said that the U.K. government acted under instruction by the European Commission, the European Union's executive body.

Although it may be no comfort, insiders said the EC thought EIS tax breaks are in breach of EC state aid rules that police national governments looking to subsidize local creative industries.

A U.K. Film Council spokesperson said that Gemma France, head of the Revenue and Customs Department here, has said she plans to meet "all affected film EIS companies" to discuss the implications.

"It is clearly important now for film EIS companies to look at negotiating their transition arrangements," the spokesperson added.

Responding to the latest development, U.K. Film Council chief executive officer John Woodward said: "Today's move by the European Commission on restricting EIS schemes will affect a number of industries including film. It is certainly not what the government, the industry or the U.K. Film Council would have wanted, and neither was it expected. However, the fact is that the U.K. government has to work within the confines of EU state aid regulation. Of course this is as a setback, but we need to let the dust settle on the technicalities, take stock and start to figure out a new way forward for investors."
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