Film tax breaks geared toward wealthy

The tax reliefs for the Irish film and television industry are inefficient and too generous towards wealthy investors, a Government report has stated.

The economic impact assessment carried out by the Department of Finance found it would be a third cheaper for the exchequer to simply give money to productions than continue with the present section 481 arrangement.

The report said it would be better to fund productions by means of a tax credit paid shortly after a minimum level of expenditure was complete.

In the budget, Minister for Finance Michael Noonan said the section 481 reliefs would be extended to 2020, but from 2016 would be changed to a tax credit model. He said investors were receiving a disproportionate amount of tax relief.

Substantial returns

The report found a third of money that could be going to productions was going to financiers who organised section 481 reliefs and in profits to investors.

Investors, who could write up to €50,000 off against tax by investing in section 481 schemes, were receiving substantial returns on minimal-risk investments.

In one case cited, an investor made a return of 23 per cent in just 10 weeks, having invested €16,150 in a production while borrowing twice as much on a short-term basis from a bank.

Three quarters of investors had income in excess of €100,000. The report said allowing high-income individuals to shelter money in this way was contrary to Government policy to abolish such shelters.

At present, section 481 reliefs cost the State €46.1 million a year in lost revenue. Producers receive about two thirds of this, or €32 million; a third goes in fees and profits to investors.

The report states that if the producers’ €32 million came straight from the State, it would amount to a net saving to taxpayers of €14.1 million in a single year. Under the current system, a production company can raise up to 22 per cent of the total cost of a production through section 481 reliefs.

Individuals can write off €50,000 against tax as an expense, saving €20,500 at a rate of 41 per cent. It amounts to a net cost to the investor of €29,500. The investor can usually expect to get the €29,500 back once the film is completed, plus a small net profit.

Tax credit model

Element Pictures producer Andrew Lowe said the typical return was €4,500 for a €50,000 investment, or 9 per cent.

He said the crucial factor in any tax credit model was that the money was available up front. Otherwise production companies would incur costs in borrowing it from a bank.

Irish Film Board chief executive James Hickey said the Government’s willingness to listen to the film industry and act in its best interests was evident in its commitment to the tax credit plan.

On the same day the Government announced the budget here, the UK chancellor of the exchequer George Osborne announced that high-end television programmes there would receive a 25 per cent break which might hit Ireland’s attractiveness as a location for British television productions.

Mr Hickey said it was important that whatever tax relief was brought in was competitive.

“The Government is very conscious of the need for us to be competitive against other jurisdictions,” he said.