You got the impression that the film makers attending last week's meeting of the Joint Oireachtais Committee on Finance and Public Affairs wanted to shout "cut" when the Revenue Commissioners took the stand, writes Barry O 'Halloran
The committee was hearing submissions on the tax relief for film production investments scheme that the Minister for Finance, Mr McCreevy said last year he would abolish on December 31st, 2004.
The Irish film industry was there in force, reading from the same script, which was basically: "if the tax break goes, the industry goes". Mr Andrew Lowe, chairman of Screen Producers Ireland (SPI), said the industry and the Government accepted that the relief, governed by section 481 of the Taxes Consolidation Act, 1997, cost the Exchequer €25 million a year in foregone revenue.
However, this investment generates €32 million a year, a return of €7 million, or 28 per cent. He added that the industry it supports employs 4,000-5,000 people, nearly all of whom would lose out if it went.
He and Mr Kevin Moriarty, managing director of Ardmore Studios, argued that section 481 was so successful that Britain, Australia and New Zealand copied it, and were competing with Ireland for big $100 million-plus Hollywood productions. Without it, we would lose the race to attract these projects.
However, Ms Muriel Hinch, principal officer with the Revenue Commissioners' direct taxes branch, had a scenario all of her own. She told the committee that audits of film investment schemes had uncovered abuses connected with 30 films that had cost the Exchequer €17 million.
This week, the tax authorities upped this estimate to 34 films and €23.3 million. On the basis that the relief allows taxpayers to claim 33.6 per cent of the full investment against their tax bills, the total amount of money involved is around €70 million.
It has also emerged that the Revenue are auditing suspected cases of as-yet uncovered abuse. They are not saying how many or who, but that the current structure of section 481 leaves it permanently open to abuse and that this is being exploited. Ms Hinch made it clear to the committee that the problem is ongoing.
She said in a reply to questioning by committee member, Labour Deputy Joan Burton, that there appeared to be cases where the money invested ended up in tax havens. It's unclear why money that's entitled to tax relief should end up in a tax haven. The Revenue cannot shed any light on this, largely because by definition, these are jurisdictions from which they cannot get any data.
The Revenue Commissioners discovered all this because they suspected particular projects and targeted them for forensic audits. Along with the use of tax havens, these threw up a number of problems, particularly that the financiers involved were using complicated structures to channel the money to the projects or wherever it was ending up, and some of them were inflating budgets.
Overall, the level of detected abuse stands at around 8 per cent of the €260 million worth of relief granted to taxpayers under the regime. Mr Lowe and his SPI colleague, Mr James Flynn, argue that most of the abuse occurred in the mid-1990s, before the legislation was tightened up. Up to that point, Mr Flynn said it was possible to raise large sums under the scheme for a range of projects. The changes mean that it can only be done one production at a time.
They argue that the Revenue figures bear out their argument. They show that in 1993-1997, Revenue detected 21 films involving abuse worth €19.4 million. In 1997-2001, the Revenue Commissioners found 13 films featuring €3.9 million worth of abuse.
However, a letter from Ms Hinch to the Joint Oireachtais Committee on Finance and Public Affairs shows that the final level of compliance or non-compliance during the 1997-2001 period has not been established.
She states that first of all, audit resources were concentrated on investigations of the earlier 1993- 1997 period. "There is inevitably a long lead-in time to the commencement of audits in film cases. Companies have two years in which to spend the section 481 investments and there is a further time lag for the completion of compliance procedures. In the circumstances, it is too early to come to a conclusion about the level of compliance or otherwise in the years 1997 to 2001."
The industry, the Department of Finance, the Department of Arts, Sport and Tourism and the Revenue, have all co-operated on drawing up new guidelines for certifying that projects are eligible for the relief. These ban the use of tax havens. Mr McCreevy recently approved them. However, the tax authorities say the only way of eliminating the risk of abuse is by reforming the primary legislation.
Despite all this, the committee gave unanimous, cross-party support to a recommendation that section 481 be preserved until December 31st, 2007, and that Mr McCreevy deal with this when he delivers his Budget address to the Dáil a fortnight from Wednesday.
It also wants the Government to establish if there are any alternative supports that would cost the Exchequer less. The recommendations also call on the commissioners to recover the cash lost through abuse of section 481, and it wants further strengthening of the guidelines to eliminate all forms of skullduggery.
With the committee's support, the film industry is now more optimistic of getting its happy ending. However, the last act will be Mr McCreevy's, as the fate of section 481 will only be known on Budget day. The Minister's speech will never be a contender for a best original screenplay Oscar, but it's one script that the Irish film industry would like very much to write.
