Brave new world for U.K. prod'n

Filmmakers weigh tough new cultural test for tax credits

U.K. Film Council chief executive John Woodward says the new tax credit system in place for filmmakers will ensure that the U.K. remains one of the best places in the world to make a film.

At this point, filmmakers from around the world are starting to consult lawyers and production experts to ensure they exploit the maximum benefit from the new tax setup.

One of the key elements of the plan is the harsher cultural test that any film production looking to access tax credits must pass.

When the changes to the cultural test were first unveiled in November (HR 11/24), the media and film industry here unleashed a volley of complaints when it emerged that the stricter regime had been insisted on by the European Commission. That debate on the cultural test is sure to continue raging well into this year.

The test, set up by the Department for Culture, Media and Sport and approved by the EC, offers a checklist for movies to score points in order to qualify as British. For example, should 75% of "the story" be set in the U.K., (such as "Peter Pan" or "Children of Men"), moviemakers would get four points.

The test is broken down into four sections — the cultural content, cultural contribution, cultural hubs and cultural practitioners — with the golden number to reach being 16 points out of a possible 31.

DCMS head of film Rebecca Greenfield is on record as saying that she wants to ensure the rules are as accommodating as they can be.

Greenfield previously issued a plea to producers to contact her department before making the application to ensure the rules are interpreted correctly. "We want to ensure filmmakers know we are here to help," she said.

Much of the initial furor centered around the fact that big-budget pictures backed primarily by U.S. studios — including such films as "Batman Begins," "Star Wars" and "Casino Royale"— may not qualify under the new-look system.

For his part, Woodward said: "As far as I know, all the major studios have had conversations with the (British) government. There is an understanding of how this system works."

The U.K. government, as an EU member state, had to put up or shut up in order to provide any kind of movie tax break, and both the Treasury and the tax-raising Revenue and Customs departments now say they want to ensure that the message is out there.

The good news for producers is that Treasury spokesman Chris Stark, who helped formulate the new-look system, insists there is no cap on the maximum amount of credit the government is prepared to offer qualifying filmmakers.

"There is no cap, it's just that the Treasury needed to estimate for the EC how much this tax credit system might cost the government," Stark explained.

U.K.-based accountancy firm Tenon Media's film unit head, John Graydon, uses a model based on a hypothetical fledgling project in explaining the new credits.

He said the basic method is to talk through the financial structure as early as possible so that each project may be drafted more efficiently. That could mean setting it up as a co-production with one of the territories, such as Canada, with which the U.K. has a treaty.

Revenue and Customs spokesperson David Harris said that best practice for filmmakers would be "to talk to your tax inspector, get to know him and discuss with him early on how you're going to do your apportionments."

Veteran British producer Marc Samuelson, whose recent credits include "Stormbreaker," is optimistic about the future. "These new tax credits should be seen as an opportunity for independent producers to access an equity stake in upcoming productions and actually have a part of any future upside," he said.

The bottom line is that the credits have been put in place to try and encourage the British film industry to reinvest in itself.

"To put it bluntly, the old systems of Section 42 and 48 have been a bit of a disaster for the Treasury. They were expensive, complicated to operate and prone to tax evasion," Stark said.

Accountants, lawyers and film financiers are now working to see just what the new system can offer "legitimate" filmmakers.