Bollywood Producers Entitled To UK Film Tax Relief Under New Co-Production Treaty

by Robert Lee, Tax-News.com, London

24 October 2008

The UK government's film minister Barbara Follett on Wednesday launched the new UK/India film co-production agreement, which grants joint Indo-British film productions access to tax breaks and a range of other funding benefits.

The new treaty, which was finalised earlier this year, allows UK-Indian co-productions to bypass the UK 'cultural test' to qualify for tax relief. This means they are granted national status in both countries and can therefore gain access to the new UK tax relief, which the UK Department of Culture describes as "one of the most generous and competitive tax reliefs in the world."

The former Secretary of State Tessa Jowell and Shri P.R. Dasmunsi, Indian Minister of Information, signed the main body of the agreement in New Delhi on December 5, 2005. Negotiations on the detailed annex to the agreement were completed and signed in June 2008.

The treaty with India will be the 7th of the UK’s bi-lateral co-production treaties. Over 400 co-production films have been made over the last 7 years, including over 140 minority UK co-productions, with an average UK expenditure of 35% which, according to the UK government, is worth over GBP1 billion to the economy.

Launching the co-production agreement on the set of major Bollywood movie 'London Dreams,' Follett said: “After the United States, the British and the Indian film industries are arguably the two greatest in the world. The range of benefits we are offering through the treaty aims to bring our industries closer together – and I am confident that Indian filmmakers will want to take up the offer.

She added: “Any Indian filmmaker who wants to collaborate with a British producer will find it more financially worthwhile."

There is growing interest in Indian films in the UK where record numbers of Bollywood movies have been released over the last few years. There were 2.6 million visits to Hindi films in the UK in 2005, and Indian films accounted for over 16% of all releases, taking GBP12.4m (USD20m) at the box office.

New tax relief provisions for the production of British cinema films, which replaced the old 'Section 48' incentives, were introduced by the Finance Act 2006. In guidance released in May 2007, HM Revenue and Customs said that the film tax regime builds on new rules for calculating the profits and losses of film production companies for tax purposes. These new rules, like the ones that they replaced, apply to all film production companies. The relief is aimed directly at film production companies and is not available to those whose only involvement in film making is confined to providing or arranging finance.

In order to qualify, a film must meet three conditions. It must: be made to be shown commercially in cinemas; be certified as British either because it is an official co-production or because it satisfies a new cultural test administered by the Department for Culture Media and Sport; and incur at least 25% of its total production expenditure on film making activities in the UK.

British films costing GBP20 million or less are eligible for an additional tax deduction of 100% of qualifying UK expenditure and to surrender losses in exchange for a cash payment of 25%, amounting to a benefit worth at least 20% of qualifying production costs. Other British films receive an additional deduction of 80% of qualifying UK expenditure and are able to surrender losses in exchange for a cash payment of 20%, amounting to a benefit worth typically 16% of qualifying production costs.

As a result of the tax incentives, the UK is expected to attract around 11% of global film production by 2010 with inward investment rising to about GBP800 million by then, according to a 2007 report by Oxford Economics.

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