U.K. biz expects no culture clash

EC mandate on tax credits met with cautious optimism

The British movie industry on Monday was mulling the likely impact of a cultural mandate set by the European Commission that determines if movies qualify for credits under the new U.K. tax credit system for filmmakers.

The EC's approval late last week of Britain's new tax credit system for filmmakers came with rigorous qualifying cultural tests for producers (HR 11/23). But as details of the EC demands filtered through to producers, lawyers and financiers alike in the U.K. on Monday, the industry gave a cautious welcome to the EC decision.

U.K. government film minister Shaun Woodward hailed the EC decision as "good news for the U.K. film industry." Tim Willis, director of film at indie producers lobbying body PACT, added: "It's a relief for everyone that the tax relief can now become a reality."

"The government has put the legislation in place and is likely to simply tweak the cultural test to ensure it complies with the EC's wishes," one high-profile indie producer said. "I can't see them doing anything more. We'll just have to get on with what we've been given. The time for change has passed."

PACT welcomed the go-ahead from the EC but maintained that "there is an important opportunity to make a significant enhancement to the new relief and to ensure that culturally British independent films are able to obtain the headline level of benefit announced by the government."

It plans to urge the government to extend the definition of U.K. expenditure to "include expenditure on U.K. talent, crafts and services, whether working in the U.K. or overseas."

PACT noted that "there are other EU countries whose new film tax incentives include tax relief on a wider definition of national expenditure, and which have been approved or are likely to be approved by the EU."

But industry observers said Monday that they doubted there will be further changes to the legislation given the timetable for the updated legislation, which is now back in the U.K. parliament for formal re-approval in the next few weeks.

"At least we've got the credit go-ahead and we can get on with it," one production legal expert said.

The new U.K. system, which runs through March 2012, aims to provide filmmakers more tax credits than normal on certain production costs. EU rules ban state aid unless it meets strict EU conditions, including the promotion of culture. Qualifying films will have to prove that they strongly promote U.K. culture.

The U.K. government also announced late last week that transitional arrangements — which saw it extend the old Section 42 tax breaks through December — will run until the Jan. 1 introduction of the new credit system.