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Irish Film Tax Relief Impact Assessment Released

by Jason Gorringe, Tax-News.com, London

13 December 2012


Irish Finance Minister Michael Noonan has released an Economic Impact Assessment Report detailing planned changes to the operation of the film tax relief scheme.

The tax relief for investment in film, television and animation productions has been in existence since 1987, taking various forms. The Finance Department reviewed the scheme in 2007, with the Commission on Taxation also taking up the subject in 2009. In his most recent Budget, delivered last week, Noonan announced that the scheme will be extended to 2020, but that the government will move to a tax credit model in 2016. The Economic Impact Assessment Report was prepared by the Economic Division in the Finance Department, and supports the Budget announcements.

The review which informed the report studied the impact of the relief in terms of the volume and value of productions supported, the number of jobs associated with related investments, and the cost to the Exchequer. It was based on consultation, international review, a survey of audiovisual producers and an economic analysis and cost-benefit study.

The report shows that the exchequer contributed EUR46.5m (USD60.3m) in tax foregone and EUR13.1m in direct exchequer funding through the Irish Film Board in 2011. Last year's expenditure levels were the second highest recorded in the seven year period 2005-2011. Approximately 1,600 full time equivalent jobs were provided in productions benefiting from the tax relief.

The review also found that the Irish model has one of the highest net benefits to producers. Compared with a 20% net benefit for UK-based productions under GBP20m (USD32.25m), comparable producers reaped a 28% net benefit in Ireland. The scheme also appears to be a very low risk to investors, the report states, and returns can be relatively high.

Nonetheless, the review detected a significant "leakage" - the headline relief rate is 41%, meaning that the leakage level stands at 13%. Such leakage is accounted for by professional fees and investor remuneration, which is ultimately "difficult to justify given the current constraints faced by the exchequer."

Further, those who participate in the scheme tend to be high income individuals, with 74% of investors in 2010 having income in excess of EUR100,000. The review found barriers to those with lower incomes, with the structure of the scheme proving inequitable because investor remuneration is dependent on the individual having a substantial portion of their income at the higher rate of income tax.

The report concludes that there are three options available for change. The government could: abolish the relief; maintain it in its current form; or amend it in light of the findings of the review. Submissions to the review stressed the importance of tax incentives for audiovisual production, but the report warns that maintaining the relief in its current format does not appear to be sustainable.

According to the report: "The scheme as currently operated fails a cost benefit analysis, has a high level of inefficiency in terms of leakage and is inequitable due to its reliance on high income individuals which itself is inconsistent with government commitments to cap or abolish tax shelters which benefit very high income earners."

Reforms are therefore needed to maintain investment in Ireland, support growth in the sector, improve equity and efficiency, and reduce the exchequer cost. The report recommends that Ireland move toward a producer-led tax credit model. This would be based on the net benefit to producers under the current scheme.

A payable credit could be delivered by the Revenue after a minimum level of expenditure is completed. The scheme's efficiency would accordingly be enhanced, and, while the exchequer cost would fall, a similar level of benefit to producers would be maintained. If such a model were in place in 2011, the exchequer would have saved 32%.

Commenting on the report, James Morris, Chairman of the Irish Film Board said: "The extension and future enhancement of the Irish tax incentive for the film and television industry demonstrates the commitment of the Irish government to the future of the Irish film and television sector and Ireland's creative industries. These changes will strengthen the sector as an important contributor to the Irish economy, and will help...the Irish Film Board to attract major film and television production activity to Ireland."

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance and Film Finance in a number of key jurisdictions, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp
TAGS: tax | investment | film finance | Ireland | tax incentives | tax credits | tax breaks

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