Fancy an Oscar of your own? Try investing in Irish movies
It is still possible to invest in Irish film - if you think outside the Section 481 box
The recent overhaul of film tax breaks has killed off private investment in the Irish film industry at a time when Irish film has had one of its most stellar years.
That revamp chopped individual investors out of the Section 481 scheme - the tax-incentive scheme for film and TV drama production - and saw the tax relief go directly to film production companies instead.
The changes to the scheme kicked in in January 2015 and individuals have stopped investing in Irish film since, according to Paul Mee, partner at Mazars. Previously, thousands had poured money into Irish film through Section 481 each year.
It is still possible to invest in Irish film if you think outside of the Section 481 box. So if you're an investor who wants to tap into some Hollywood blitz - given the record number of Oscar nominations for Irish films at last Sunday's Oscar ceremony - how would you go about doing so?
One way that you can invest in Irish film and TV and still get tax breaks is through the Employment and Investment Incentive Scheme (EII) scheme. Under that scheme, you can get tax breaks of up to 40pc of the amount you invest, as long as certain conditions are met.
You must be careful exactly what you invest in to qualify for tax breaks under the EII scheme. Unlike the old Section 481 scheme, individual investors cannot got tax relief under EII if they invest directly in the production of a film or TV series. However, you can get the tax relief for investing in film infrastructure (such as film studios) and for investing directly in Irish film and TV companies, according to John Gleeson, head of media and entertainment with Grant Thornton.
When investing directly in a film or TV company through EII, you are essentially providing capital to the company, which will then be spent on things like research and development.
"The days of investing directly in Irish film and TV projects, and getting a tax break for doing so, are broadly gone, though there are some limited exceptions," said Mr Gleeson. "But investing directly in a specific project is not the only way to invest in Irish film and TV.
"The EII scheme provides an opportunity to invest in the wider Irish film and television industry. By investing directly in film and TV companies, you are investing in their development activities, which ultimately leads to production, intellectual property and copyright revenues from around the world."
Mazars recently acted as corporate finance advisors to a film studio in Limerick, which raised money under the EII scheme last year. There could be more of these film studio investment opportunities to come.
"One of the main things holding the Irish film industry back is the lack of availability of suitable studio space in Ireland, but there are plans for the expansion of studio space here," said Mr Gleeson. "So we expect there will be investment opportunities coming down the line to invest in such studio expansions - through the EII."
Grant Thornton is currently acting as adviser to three clients in the film industry who plan to seek money soon from individual investors under the EII scheme. These investment opportunities will become available by the end of this month, according to Mr Gleeson.
"One client is a very high-profile company in Ireland that has a slate of high-end TV drama projects in development," said Mr Gleeson. "The clients needs cash investors to bring these projects to a 'green light' stage with large TV networks in the US. The second client is a newly established Irish subsidiary company of a reputable production house in LA that has a slate of feature films with budgets ranging from $10m to $25m (€23m).
"A former head of a very large film company has established a company in Ireland for the development of this slate of movies, which may not necessarily be produced in Ireland, but all of the development activity will happen here and for that reason, it will qualify for EII funding."
The third client, which needs development finance, is involved in TV, animation and game shows, according to Mr Gleeson.
"All three clients are offering different forms of matched finance deals, where they will invest the same amount of money through the EII scheme as an individual investor does," said Mr Gleeson.
Under the EII scheme, you get an initial tax break of 30pc (as long as you're eligible for the relief). You can then get a further tax break of 10pc after four years, as long as certain conditions are met (including that a least one extra member of staff has been taken on by the company during that time). You can get tax relief on investments worth up to €150,000 a year until the year 2020.
You cannot get EII tax relief for something on which a film producer is already claiming Section 481 tax breaks. "If a project is already benefiting from the new Section 481 corporation tax credit, the two reliefs [that is Section 481 and EII] are mutually exclusive," said Mr Gleeson.
The EII tax relief is valuable because it is the main reason you could almost double your money if you invest successfully in Irish film or TV.
"For every €1 people invest, the hope is that the return would be €1.10," said Mr Gleeson. "However, if you get your tax break, the net cost of every €1 you invest is 60c. So you're getting €1.10 on every 60c."
Investing in film or TV, however, can be risky. You could lose some, or even all, of your money. Furthermore, to qualify for EII relief, there must be no condition in your investment which would eliminate the risk to you as an investor, according to Revenue's rules. So investing in a film company (or indeed any company) through the EII scheme is risky. There are ways, however, to reduce that risk.
"Before investing in a film or TV company, talk to a lawyer or accountant who understands the industry," said Mr Gleeson. "If you are getting involved in an investment, ensure there are established people with a track record of delivering successful film and TV projects in the mix.
"Film investment is a risky game but follow the flock and you can derisk yourself. The definite 'do not' investment is someone who has no track record or contacts - who has decided to make a movie for the first time."
Of course, there is one major unknown in film investing - how well it will do in the box office (if it gets there). "Choose a well-known, established film producer, so you are relatively sure that the film will be made," said Mr Mee. "After that, it depends upon the public."
Another way to invest indirectly in Irish film and TV is through a film finance fund. One such fund, which has been closed to new investors since last spring, is the BCP Film Finance scheme.
To invest in that fund, you needed at least €20,000 and the ability to lock that money away for three years. The fund, which provides short-term finance to small and medium-sized blue chip film and television projects, expects to make a return of 8pc a year for investors. There is no capital guarantee with this scheme, so investors may get back less than what they put in. You don't get any tax breaks for investing in the fund.
"This fund was well over-subscribed," said Mr Gleeson. "BCP will be hoping to do a fresh round when the fund matures in two years' time. It is the only fund of its kind available in Ireland and to the Irish film industry. Individual investors are basically investing in the fund and the fund is then lending money to film producers to bridge cashflow needs on individual projects and charging a finance fee for that. That [the finance fee] is where the investor makes his money."
Only production companies with a strong and proven track record are lent money from this fund, according to the fund's brochure.
Before investing in funds of this nature, make sure the projects covered by it are fully financed and that the producer can complete and deliver the project on budget, advised Mr Gleeson.
Grant Thornton is also in the early stage of putting together the structure for a gap finance fund for certain film and TV projects. The aim of that fund is to finance any shortfall between the funding already secured for a project - and the cost of producing that project.
"With the right project, it is possible to invest in that gap in exchange for unsold territories [countries where rights to the films have not yet been sold]," said Mr Gleeson. "When the project is completed, a distributor then sells those territories and the money is returned with the intention that it is returned with a profit."
Like any investment, get independent advice before you put your money into Irish film, whether you're doing so through the EII scheme or a film finance fund. Investing in Hollywood stars might well seem more interesting than putting your money into stocks and shares, - but if you get blinded by the glamour, you could get burned.
Sunday Indo Business