TAX INCENTIVES FOR FILM PRODUCTION IN IRELAND ‘SECTION 481’

Paul Mee and Elaine Gill

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TABLE OF CONTENTS1. Film tax credit – what is it ?

2. Summary of the application process

3. Example of film tax credit

4. Qualifying budgets and eligible expenditure

5. Qualifying film

6. Timing of payment of tax credit

7. Conditions associated with the relief

8. Compliance and clawback

9. Withholding tax on payments to certain artistes

10. Question time

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FILM TAX CREDIT – WHAT IS IT?• Repayable corporation tax credit

• The current percentage credit payable is 32% of eligible spend

• Maximum spend = the lower of 80% of the total budget or €50,000,000.

• An application is made to the Irish Revenue Commissioners

• Early payment of 90% of the credit available

• 10% of the credit is held back until completion of the film

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SUMMARY OF APPLICATION PROCESS

Certification application by Producer Company

Revenue reviews application

Minister for Arts confirms project qualifies

Certificate is issued to Producer Company

Producer Company can apply for early payment of

up to 90% of tax credit awarded to project

Final 10% paid post completion of film

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EXAMPLE OF TAX CREDIT• UK production suitable for shooting in Ireland.

• €10,000,000 budget - €7,000,000 Irish eligible spend - €3,000,000 non-Irish spend

• Film tax credit 32%* of €7,000,000 i.e. €2,240,000.

• UK producer engages an Irish producer/SPV to work on project.

• 90% early payment requires UK producer to lodge €4,760,000 into bank account of new SPV.

• UK producer accesses section 481 tax credit of €2,240,000 by paying €4,760,000.

* In practice, the level of the tax credit will be lower than 32% due to the additional legal accounting and other non

production costs required to obtain the film tax credit

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EXAMPLE OF TAX CREDIT (CONT.)

Finance Plan pre Section 481 Tax Credit - €10,000,000 budget

Pre- sales € 7,500,000

UK Producer contribution € 2,500,000

Total budget €10,000,000

Finance Plan Post Section 481 Tax Credit - €10,000,000 budget

Pre- sales € 7,500,000

Section 481 tax credit € 2,240,000

UK Producer contribution € 260,000

Total budget €10,000,000

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QUALIFYING BUDGET/ELIGIBLE EXPENDITURE• Minimum budget qualifying for tax credit €250,000

with minimum eligible spend of €125,000

• Eligible spend includes both spend on individuals and services

• Individuals working in the State (non-Irish/non-EEA artistes subject to 20% withholding tax)

• Goods Provided within the State means:

- goods located within the State when supplied

- goods transported, beginning in the State

- facilities located within the State - transport beginning or ending in the State - services carried on in the State

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INELIGIBLE EXPENDITURE• Deferrals are unacceptable expenditure unless paid within four months of delivery to

distributor/financier

• Distribution and marketing costs

• Post delivery costs

• Costs associated with pre sales

• Costs of rights except if required for film production

• Capital expenditure on assets not used up in production or

• Amounts paid out of or dependent upon the utilisation of or earnings from the completed film

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QUALIFYING FILM

To be a qualifying film the film must be deemed so by the Minister for Arts.

Qualifying films must be produced on a commercial basis with a view to the realisation of profit and produced for exhibition to the public in cinemas or through broadcasting.

The following projects can apply for certification to be a ‘qualifying film’-

• Feature films

• Television drama

• Animation – film or television

• Creative documentaries (based on an original theme, which contains a certain timeless element and involves substantial period of preparation and post-production and contains original filming)

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EXCLUDED FILMS

Projects which are specifically excluded from qualification are –

• Films made for exhibition as an advertisement

• Public or special performances staged for filming or otherwise

• Sporting events

• Games or competitions

• Current affairs /talk shows /unscripted “reality” type programmes

• Demonstration programmes, review, magazine-style or lifestyle programmes

• Product productions in-house by a broadcaster

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CULTURAL TEST – QUALIFYING FILM

The film must then satisfy three of the following criteria –

• Films made for exhibition as an advertisement

• Be an effective stimulus to film making in Ireland, demonstrating its importance to the promotion, development and enhancement of the national culture

• The screenplay upon which the Film is derived is mainly set in Ireland of other EEA country

• At least one principal character is connected with Irish or European culture

• The storyline or underlying material is part of, or derived from, Irish or European culture and /or heritage

• For animation film, the storyline clearly connects with the sensibilities of children in Ireland or other EEA country

• The screenplay from which the film is derived is an adaptation of an original literary work

• The storyline or underlying material of the film concerns art and / or an artist/ artists

• The storyline or underlying material of the film concerns historical figures or events

• The storyline or underlying material of the film addresses actual, cultural, social or political issues relevant to the people of Ireland or those living elsewhere in the EEA

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TIMING OF PAYMENT OF TAX CREDITAdvanced Tax Credit

• Financial/legal closing has taken place or

• Certificate from IFB that first tranche IFB production funding agreed for release

• Certificate from BAI that first tranche BAI production funding agreed for release

• Producer Company gets bank guarantee/surety bond or similar instrument covering repayment of first instalment

First Instalment

• 90% specified amount

Second Instalment

• 10% balance within 30 days of submission of compliance report

No Advanced Payment

• If not paid in instalments, within 30 days of submission of compliance report

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WHAT IS THE LEGAL AND FINANCIAL CLOSING• Execution of legal agreements

• Conditions for commencement of cash flowing fulfilled

• 68% of eligible expenditure amount lodged to qualifying company bank account

• Letters from solicitors and accountants in prescribed form are required to confirm all of the above

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CONDITIONS ASSOCIATED WITH RELIEF-PRODUCER COMPANIES

• Irish tax resident company

• Neither a broadcaster nor a company whose business consists wholly or mainly of transmitting films on the internet, nor can it be connected to either of these types of businesses

• 100% shareholder of a qualifying company

• Carrying on a trade in Ireland for at least 21 months (see next slide for discussion)

• Fully tax compliant in Ireland

• Must continue to trade for at least 12 months after completion of the film.

Not a producer company but looking to make a film in Ireland - partner with an established Irish producer company

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CONDITIONS ASSOCIATED WITH RELIEF- QUALIFYING COMPANIES

Qualifying Company –

• Irish tax resident company

• Newly established to produce one film and one film only

• 100% subsidiary of producer company

• Incurs all qualifying Irish spend on the film

• Must continue in existence for at least 12 months after completion of the film

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QUALIFYING PERIOD – 21 MONTH RULE

• Long established producer company

• Financial accounts made up to 31 December

• Application made 31st May 2015

• Nearest filing date 23rd September 2014

• Relevant accounting period 31st December 2013

• Commencement of trade date 1st January 2013

• Producer company must be trading at the commencement date

• Tax credit offset against 31st December 2013 producer company tax liability

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TAX COMPLIANCE CERTIFICATION

The producer company, qualifying company and each person owning or directly or indirectly be able to control more

than 15% of ordinary share capital must have:

1. Direct taxes and VAT payments up to date including interest and penalties (what happens if a company has an

agreed instalment program with the Collector General? What happens if there is an ongoing matter in dispute?

What if a revenue audit or appeal is under way?)

2. Returns up to date

3. Responded to all information requests about any business carried on by either company or person.

The above are a test at the time of certification.

N.B. Tax clearance certificates will need to be produced for all entities and relevant

individuals – applies to Irish resident companies and individuals only

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FILM COMPLIANCE – PRODUCER COMPANY

• Filing of compliance reports as per regulations – 4 months from delivery & acceptance (Rag 12)

• Continue to trade 12 months after completion report

• Shares in qualifying company held for 12 months after compliance report

• Must remain tax compliant for 12 months after the compliance report (same for qualifying company)

• Production agreement between producer company and qualifying company

• Provision of production funding by producer to qualifying company at least equal to tax credit and balancing 68% of eligible spend

• Amount expended is at least eligible expenditure per the cert – revised certs can be applied for to avoid clawback

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ADMINISTRATION

• Regulations apply to applications made after 1st January 2015

• Revenue must be notified within seven days of the first expenditure being incurred following the application

• Four month deadline period for notifying Revenue of completion – starts from completion

• Four month deadline period for submission of compliance report to Revenue – starts from delivery and acceptance

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CLAWBACK

• Can be clawed back from producer company, director of qualifying company or producer company and persons owning or able to control, directly or indirectly, a 15% plus shareholding in either company

• Taxed as Case IV income

• 4 times excess x 25% in hands of company

• Excess x 100/40 * 40%

• Limited liability is removed – personal liability

• No guidance as to who Revenue will tax first – joint and several

• Cashflow risk of incorrect credit removed from Revenue

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WHAT CAUSES A CLAWBACK

• Revocation of certificate

or

• Producer or qualifying company

- Fails to comply with any section 481 requirements in legislation or regulations- Failure to comply or satisfy any condition in the certificate- Within 12 months of delivery of compliance report, producer or qualifying company ceases to comply with tax filing and payment obligations

• NB:

- Whole tax credit is clawed back- Interest runs from date excess paid, not date of clawback, at 0.219% per day

WITHHOLDING TAX

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KEY POINTS

• Applied at a rate of 20%

• Applies to non EU/EEA artistes

• Applies to loan out companies of artistes

• Applies to qualifying companies availing of the new tax credit system

• Expenses are deductible. The following should be accepted

1. Travel and subsistence expenses

2. Manager and agents fees

3. International air fares to Ireland immediately before the artistes involvement in the production commences

and from Ireland immediately after the artistes involvement ceases

• Artiste must supply details to confirm their tax residency

• Withholding tax receipts issued in name of artiste even if a loan out company

• Monthly returns are required

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QUESTION TIME !!

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CONTACT

Mazars

Galway - Paul Mee

Mazars Place, Salthill, Galway, IrelandTel: +353 (091) 570100 Email: pmee@mazars.ie

Dublin– Elaine Gill

Harcourt Centre, Block 3 Harcourt RoadDublin 2, IrelandTel: +353 (01) 4494400Email: egill@mazars.ie