Revenue audit of film tax relief exposes €17m problem

Barry O'Halloran

The Revenue Commissioners may seek to claw back €17 million from individuals who invested in films after discovering 30 projects did not comply with tax legislation.

Ms Muriel Hinch, principal officer of the Revenue's direct taxes branch, told an Oireachtas joint committee yesterday that an audit of the tax relief for film investments had uncovered 30 projects that did not comply with the law. She said the cases involved €17 million in uncollected tax. Ms Hinch added that, in one case, the Revenue found some of the money involved ended up in a "tax haven", where she said a bank held a charge over it.

She calculated the overall non-compliance uncovered by her inquiry at 6.4 per cent. Government figures show the tax break has cost the Exchequer €265 million over the last 10 years, of which €17 million is equivalent to 6.4 per cent.

Ms Hinch told the Oireachtas Joint Committee on Finance and the Public Service that the Revenue had several concerns regarding the tax break. She said the scheme required specific levels of expenditure on Irish goods and services but her investigations found the firms involved used "complicated structures" involving sub-contracting at different levels. "It's very hard to track down the level of expenditure and to find out what exactly is Irish expenditure," she said. "A large proportion of Irish expenditure ended up in tax havens."

Asked by Labour deputy Ms Joan Burton if she was talking about events in the past, Ms Hinch said: "No, I am talking about the present."

She warned that more needed to be done to cut the risk of abuse in the areas that she specified.

The tax official did not confirm that the Revenue was pursuing the investors. But it is understood that they are in the same position as those who evaded deposit interest retention tax (DIRT) by placing their money in bogus non-resident accounts. The Revenue is pursuing those individuals for the money due.

The Minister for Finance, Mr McCreevy, announced in last year's budget that the tax break would not be extended beyond the end of next year. The Irish film industry has opposed this, arguing that the move will effectively kill the sector.

Industry bodies yesterday told the committee that, if the relief was not extended, large-scale Hollywood productions would go to competing countries like Britain, Australia and New Zealand.

Section 481 of the Taxes Consolidation Act, 1997 governs the relief. It allows taxpayers to invest up to €31,750 in individual projects, and to claim relief subsequently on 80 per cent of this at the marginal income tax rate of 42 per cent.

Mr McCreevy recently approved new guidelines for certifying investments in film production as being eligible for the Section 481 relief. These specifically exclude projects which channel the funds through tax havens, or where part of the overall investment originates in one of these jurisdictions.