EC Authorizes Italian Film Finance Provisions, Quizzes Others

by Lorys Charalambous, Tax-News.com, Cyprus

24 July 2009

The European Commission has approved under EC Treaty state aid rules Italy’s innovative EUR82m package of film tax incentives until December 31, 2010.

The incentives aim to stimulate investment from outside the film production sector into European cultural films and to support the distribution of such films. The Commission found that the incentives are compatible with the cultural derogation of the EC Treaty. The Commission has also opened a formal investigation into a proposed 30% tax credit for installing digital projection equipment in Italian cinemas because it has concerns that the measure may mainly benefit large multiplexes which should need less support. The opening of an in-depth investigation gives third parties the possibility to comment on the proposed measure. It does not prejudge the outcome of the procedure.

Competition Commissioner Neelie Kroes commented: "A public debate on the impact of digital cinema in Europe is long overdue since some have suggested that thousands of Europe’s arthouse and local cinemas may face closure because they cannot afford the conversion costs. Over 75% of Italian cinemas have 1-4 screens and, due to their lower profitability, they seem less likely to benefit from the proposed tax credit than larger multiplexes. I am therefore grateful to the Italian authorities for their cooperation in examining this complex topic and for proposing to organise a workshop on digital cinema during the Rome Film Festival in October."

Innovative film tax incentives

The package of film tax incentives approved by the Commission includes:

• tax credit and tax relief for businesses outside the film sector investing in the production of European cultural films;
• tax credit for film distributors and exhibitors investing in the production of films of special cultural interest; and
• tax credit and tax relief for distributors of European cultural films.

These incentives complement the Italian film production tax incentives approved by the Commission in December 2008 and aim to stimulate private finance for the production and distribution of European cultural films.

The Commission concluded that the film production support was in line with the state aid rules outlined in the 2001 ‘Cinema Communication’. For the other types of support in the package, the Commission assessment applied the derogation in Article 87.3(d) of the EC Treaty, allowing aid for cultural activities under certain conditions.

Tax credit for digital cinema

Italy also proposed to offer a 30% tax credit for installing digital projection equipment in Italian cinemas. However, at this stage, the Commission has doubts about the compatibility of the tax credit with the state aid rules. In particular, the Commission has concerns regarding the maximum eligible costs, the incentive effect of the aid for more profitable cinemas, the limited access for smaller cinemas to the aid and the social and cultural impact of the aid. Interested parties are invited to submit comments by October 31, 2009.

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