Lights, camera, inaction on tax relief a threat to filming
If tax breaks are left on the cutting-room floor, there will be no happy ending for the €500m sector, says Roisin Burke
FINANCE MINISTER Michael Noonan's Department of Finance is planning a major review of film and TV tax breaks. Although the current breaks are locked down until 2015, their long-term future could well be in jeopardy if the tax reliefs (called Section 481) are cut, as big international studios plan years in advance on location selection for filming and production.
Murmurings about the lack of profitability of recent Section 481 films and the questions about the economic benefits of the current tax break structure have prompted a review that could lead to radical change.
The Government is flying a kite on change through a consultation paper that asks the question: "Is the Exchequer's support to the film and TV sector an efficient use of scarce resources, and if so, why?"
The Department of Finance points out that other types of state funding might well achieve the same effect at a lower cost to the taxpayer, which sounds an ominous note for investors.
The department also asks if the tax sweeteners are "an efficient use of scarce resources, and if so, why?" and asks: "What are the economic arguments for restricting or terminating the scheme?"
Interested parties have had just two months to give input on something that could be critical to the survival of the industry here.
Revenue estimates tax forgone due to the film relief at €49m in 2011, a trebling since 2005.
On the other hand, €114m was spent here by the industry on tax break film and TV projects last year, employing more than 15,000 people. An Ibec report puts the net tax gain at about €8.6m.
Creative Capital, a recent PwC report, recommends that not only should the scheme be extended to 2020, but research and development tax credits should be beefed up and greater reliefs should be given to gaming and animation companies as well.
It's certainly a potentially juicy investment option as things stand. Under the scheme there's a potential return of about 13 per cent. The return is not dependent on whether the film is a success or not.
If the film/TV production isn't made, you lose your shirt -- but incidences of this are very low, making it seriously high yielding for investors compared to other low-risk investments like sovereign bonds and deposit accounts.
State-funded Irish Film Board boss James Hickey says the department running the rule over the tax breaks is a "normal process of review" -- but if it's raising the prospect that they could be done away with, it is surely more than that.
"The PwC report identified that audiovisual production in Ireland had an annual turnover of over €500m a year," said Hickey. "The objective would be to double that €500m to €1bn.
"Other countries are boosting their film, TV, gaming and animation tax breaks to such an extent that Ireland will battle to compete.
"In order for Ireland to continue to compete in international markets, Section 481 has to be effective," said Hickey. "With tax credits and tax incentives obviously being the norm at this stage in many jurisdictions we'd be placed at a significant disadvantage," he warned.
Right now Britain is ramping up its tax reliefs, improving them for high-end TV dramas like Downton Abbey, and extending investment lures for computer games and animation, and Italy is doing likewise.
Studio owner Joe O'Connell knows all about the travails of trying to tempt in Hollywood studios to Ireland. He and respected producer Morgan O'Sullivan (Braveheart, The Tudors) recently opened Ashford Studios in Wicklow, where the MGM-backed blockbuster Vikings, starring Gabriel Byrne and Glee's Jessalyn Gilsig is due to film shortly.
"There is a €45m spend on Vikings at the moment, and we could have a quarter of a billion spend and keep 5,000-10,000 people employed -- that potential is there," O'Connell claimed.
"If the breaks are not there and there is better choice in another country, we're screwed," he said succinctly.
"It's a bit like the 12.5 per cent tax, a lot of people would just leave.
"The new measures the UK is bringing in will give it an advantage over Ireland or at least put it on level par, as I understand it.
"I've spoken to heavy hitters from the US about what they're looking for from Ireland and they say it's mainly about the bottom line. Even if the facilities are beautiful, if it's going to be more expensive here it's a problem. We have to compete, and it's the Government's job to make sure we're competitive."
O'Connell would like to see state support for the sector go much further than the current Section 481.
"We're the first new facility in 50 years. You could shoot the Pirates of the Caribbean in the middle of winter here in Ireland with this facility. But we will lose €1.5m next year. There is no point in having fantastic tax advantages but sky-high rates and electricity standing charges for companies coming here. We pay €40,000 a year in such charges alone," he said.
"We need more than 481, otherwise productions will go to Prague."
Sunday Indo Business