Submissions
OCTOBER 2005
EQUITY RESPONSE TO HM TREASURY CONSULTATION
"REFORM OF FILM TAX INCENTIVES: PROMOTING THE SUSTAINABLE PRODUCTION OF CULTURALLY BRITISH FILMS"
INTRODUCTION
1. Equity is the trade union for people working in the entertainment industry and represents 37,000 performers and creative personnel. According to a recent survey conducted with Skillset, the Sector Skills Council for the audio-visual industries, around 20% of Equity members who had worked in the UK performance industry in the past year had spent some time working in film. Therefore the future health and sustainability of the UK film industry is clearly a core issue for Equity and its members, without whom there would be no films.
2. Equity's guiding principles, with respect to the direct financial support for film referred to in the consultation document, are relatively straightforward. Any incentive should be clear and transparent as to what is being offered; it must be truly available and not overly restrictive in its application; and it must be set at a level that is effective in providing support for the indigenous UK film industry and attracting inward investment.
The grant-in-aid assistance provided by the UK Film Council should continue to be made available, but access to these funds should be made as simple and user friendly as possible.
Tax incentives should be made available to as many films as possible, by ensuring that the qualifying criteria and any cultural test are reasonable and not restrictive.
The tax benefit (however structured) should be provided directly to the film-maker; on all eligible expenditure; and as soon as practically possible - in order to provide certainty and clarity for producers.
Equity agrees that the incentive should be framed to assist in the production of films that would not otherwise be made, both those with a smaller budget (previously covered by S.48) and a larger budget (previously covered by S.42). In order to achieve this, the grant in aid assistance and incentive must be available and accessible to smaller films, with the measures for larger films being sufficiently attractive to attract the important inward investment required.
The net impact of the tax incentive regime must be sufficient to attract and enhance film-making activity. While other parts of the world can compete on price alone, the UK offers an overall package to producers that is unrivalled - with high quality production facilities, creativity, technological expertise, innovation, a skills and knowledge base, as well as high quality personnel and performers. However, the key is to combine this with fiscal measures that are sufficiently attractive.
3. When measured against these broad principles, the Government's proposals provide a positive framework, but Equity believes that it may constitute a missed opportunity unless some key elements can be addressed.
4. Moreover, Equity's detailed comments on the proposed definitions and measures contained in the Treasury consultation document should be taken in the context of its opposition to the "cultural test" as currently proposed by the Department of Culture, Media and Sport. While the detailed response on this proposal is contained in a separate consultation response, it is important to note that Equity does not believe that the restrictive measurement of "cultural practitioners" should allocate weighting points on such a narrow definition of film roles and jobs.
THE PROPOSED NEW RELIEF
Definition of producer
5. Equity is concerned that the proposed definition of a "producer" of a film (para 5.5.) is framed in a manner that could reduce the type of inward investment that the overall tax regime is supposedly designed to encourage. It is unreasonable to insist that a producer in this context must incur "all of the production expenditure" and owns "all rights" in the master version when the film is completed.
6. This definition ignores the activity that is required to forge co-production arrangements (where investment and ownership are shared). In particular, it is unlikely that Hollywood studios would allow exploitation rights to remain in the UK in this way.
7. The Government must acknowledge the importance of co-productions by allowing for instances where there is more than one producer. It would therefore be more appropriate to apply the definition of "maker" in the Films Act 1985, as "the person by whom the arrangements necessary for the making of the film are undertaken".
Level of benefit and expenditure
8. As an organisation representing performers and creative personnel, Equity does not have its own direct experience of film production or first hand insight into the preferred level of benefit required. Nevertheless we understand that it is a widely held view within the industry that the range of benefit outlined in the consultation document is insufficient, either to attract higher budget productions to the UK or encourage higher budget ambitions of UK producers. Therefore, Equity would support an enhanced level of benefit, which sustains indigenous film production but also attracts inward investment.
9. The nature of the tax credit provided may also required further investigation in order to maximise its utility and benefit to the producer. In particular the Government should work with the industry to examine ways in which this mechanism can best be applied in order to secure the best deal on additional finance, through banks, financial institutions and other potential backers.
10. Finally, while Equity would support an increase in the enhancement of the benefit, it would not advocate a further reduction or (possible elimination)of the minimum expenditure requirement. Setting the UK expenditure level too low could encourage the growth of cherry-picking, with producers deliberately limiting their UK production involvement to, for example, visual effects. This could undermine the need to support a critical mass of UK production skills and facilities across the board.
Definition of expenditure
11. Once again Equity would stress that it views any definition of expenditure in the context of the "cultural test", which must apply a reasonable definition that accounts for the UK and EU input in the making of the film and the jobs that are created as a result.
12. The proposed statutory definition of qualifying UK expenditure (para 5.10) may itself provide an important measure for improving clarity for film-makers, by defining the goods and services to be included for tax relief purposes. Equity would continue to apply its principle of encouraging and attracting as much film making activity as possible, but the Government would need to be certain of the benefits if it chose to broaden the definition for the acquisition of infrastructure, services and talent, so it included expenditure in the UK (including on non-UK elements) and expenditure on UK elements (including for work done outside the UK).
13. Annex A (p.29) states that "the Government does not accept there is any justification for widening the definition of production expenditure for the purposes of tax relief" and that "the relief is provided only on costs directly incurred on film production
14. However, we would call upon the Government to re-examine whether the definition of production expenditure are appropriate. In particular a full assessment should be provided that examines whether or not the current definitions are a true reflection of all legitimate costs incurred directly as a result of a production.
Transitional arrangements
15. The proposals do attempt to make some allowance for the likely problem of transferring from the current regime into a new scheme with a new statutory definition of production expenditure (para 5.27). The key to these arrangements is clarity and certainty in order to enable films to be completed and/ or allow financing to be put in place using the appropriate definitions and regime.
16. There is particular concern that the current dates for commencement and transition could lead to difficulties in getting project financing in place in the period between the cut-off date for the current regime (April 2006) and the likely implementation of the new rules in (Autumn 2006).
17. Clearly films that are already in production when the new tax relief is introduced should not be subject to the new definitions of production expenditure and should have sufficient time to complete. Moreover, the cut off date for S.48 and S.42 should be extended until after the new legislation is in place. This is the only way in which the appropriate preparation and financing arrangements can be given the type of certainty that is required.
CONCLUSION
18. The structure of the fiscal measures being proposed in the consultation document may well provide the basis for the future support of film production in the UK. However, the success of these measures will depend upon a number of factors highlighted in this response. Namely that the definitions are workable and acknowledge the reality of the film industry; that the level and nature of benefit is sufficiently attractive and to improve and sustain UK film production and jobs related to this production; and that the transitional arrangements can provide greater certainty while allowing for the necessary flexibility to ensure that productions will to continue to benefit from tax incentives during this period of change.
19. In addition, Equity must stress the importance of adjusting the proposed cultural test, if the tax incentives are to be truly accessible and sufficiently attractive. At present it is the view of Equity that the proposed measurement of "cultural practitioners" in particular does not match with the commercial reality of film-making. More detail has been provided on this matter in our submission to DCMS.
20. As noted above, there will always be macro-economic factors, such as a cheaper overseas workforce or unfavourable exchange rate, that cannot be addressed however attractive the tax incentives provided by the UK Government. Nevertheless, the regime needs to be as attractive as it can be, in order for the UK film industry to continue to make its case based upon knowledge, creativity, expertise, innovation and experience - headed by a broad range of world-class actors and performers.
18 October 2005
For further information contact:
Matthew Payton
Research and Parliamentary Officer
Equity
Guild House, Upper St Martin's Lane
London WC2H 9EG
020 7670 0260
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