New Draft Cinema Communication - Everything's going to be okay!
The EU Commission has gone some way to redeeming itself in the tax credit context (after its frustrating decision to investigate the video games credit - see our earlier blog post).The new draft
The EU Commission has gone some way to redeeming itself in the tax credit context (after its frustrating decision to investigate the video games credit - see our earlier blog post).
The new draft Cinema Communication has finally been published, and you can read it here. It's not a particularly easy read (one HMRC representative at the recent PACT Roadshow in Bristol described its language as "dense". Read into that what you will.)
By way of reminder, all creative sector tax reliefs are state aid, and state aid is prima facie illegal. The Cinema Communication sets out the EU Commission's "rules" on what constitutes permissible state aid in the film and TV context. Last year, the EU Commission published a new Draft Cinema Communication which would, if implemented, have destroyed the tax credit systems as we know them.
The important bit of the new Draft Cinema Communication for the UK tax credits is at paragraph 52:
...Member States may require a minimum level of production activity in their territory for projects to qualify for any aid. This level cannot, however, exceed 50% of the overall production budget. In addition, the territorial linking shall not exceed 80% of the overall production budget."
If you would prefer not to translate this into English, what it means is that the UK film and TV tax credits are okay in their present form and no changes will be necessary. The UK tax credits require just 25% of the overall budget to be used or consumed in the UK, and the territorial linking does not exceed 80% of the overall production budget (because the maximum credit is 25% of 80% of the budget).
Compared to the earlier draft Cinema Communication (see our earlier blog post) this is very good news. Thanks and well done to the UK team dealing with the EU Commission for their part in obtaining this very welcome outcome.
There was also some concerning language in the old draft Cinema Communication for US (and other non-EU) inward investment, with some complicated proposals which would, if introduced, have reduced the value of the tax credits for non-UK copyright owners. All of those proposals have been dropped, and inward investors will now continue to be in the same position as UK companies.
I suggested to Des Ryan (I believe part of the UK team dealing with the EU Commission, so thank you, Des) at HMRC that the new Cinema Communication was a total capitulation by the EU Commission. He didn't want to use that language but I'm pretty sure he was smiling on the inside.
The new draft Cinema Communication has finally been published, and you can read it here. It's not a particularly easy read (one HMRC representative at the recent PACT Roadshow in Bristol described its language as "dense". Read into that what you will.)
By way of reminder, all creative sector tax reliefs are state aid, and state aid is prima facie illegal. The Cinema Communication sets out the EU Commission's "rules" on what constitutes permissible state aid in the film and TV context. Last year, the EU Commission published a new Draft Cinema Communication which would, if implemented, have destroyed the tax credit systems as we know them.
The important bit of the new Draft Cinema Communication for the UK tax credits is at paragraph 52:
"In view of the specific situation of the European film sector, and provided that Member States do not use criteria based on the origin of goods, services or workers in the internal market, film production support schemes may...:
... calculate the aid amount as a percentage of the expenditure on film production activities in the granting Member State, typically in case of support schemes in the form of tax incentives
...Member States may require a minimum level of production activity in their territory for projects to qualify for any aid. This level cannot, however, exceed 50% of the overall production budget. In addition, the territorial linking shall not exceed 80% of the overall production budget."
If you would prefer not to translate this into English, what it means is that the UK film and TV tax credits are okay in their present form and no changes will be necessary. The UK tax credits require just 25% of the overall budget to be used or consumed in the UK, and the territorial linking does not exceed 80% of the overall production budget (because the maximum credit is 25% of 80% of the budget).
Compared to the earlier draft Cinema Communication (see our earlier blog post) this is very good news. Thanks and well done to the UK team dealing with the EU Commission for their part in obtaining this very welcome outcome.
There was also some concerning language in the old draft Cinema Communication for US (and other non-EU) inward investment, with some complicated proposals which would, if introduced, have reduced the value of the tax credits for non-UK copyright owners. All of those proposals have been dropped, and inward investors will now continue to be in the same position as UK companies.
I suggested to Des Ryan (I believe part of the UK team dealing with the EU Commission, so thank you, Des) at HMRC that the new Cinema Communication was a total capitulation by the EU Commission. He didn't want to use that language but I'm pretty sure he was smiling on the inside.