Article:

International creative tax incentive and grant options are near-endless - so how to choose?

24 January 2022

Original content provided by BDO Global.

Author: Peter Smithson

Los Angeles and London are bastions of TV and film production, to no small degree because of tax credit programmes.

Georgia is another prime example of a location that has successfully leveraged tax incentives to attract TV and film production.

Simultaneously, the state showcases the opportunities and challenges facing film and TV producers, attorneys, tax executives, and finance executives when considering where to place productions.

The list of incentives and grants for TV and film production is practically endless. Such incentives can play a significant role in figuring out production costs and hold substantial implications for financing and profitability. These considerations must include a detailed understanding of the increasing auditing requirements. Today, most production companies that qualify for tax credits are audited, with auditing requirements being phased in for many smaller projects.

The long list of countries

The following is not a lung capacity test, although it could double as such. Instead, it is an inexhaustive list of the countries that have production and tax incentives schemes for film and TV:

Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Greece, India, Italy, Japan, Malaysia, Mexico, New Zealand, Poland,   Singapore, South Africa, Thailand, the UK, and the US.

If you made it through that list in one breath, the next level is some of the areas of a TV or film production that may qualify for tax relief, which varies subtly by country:

Reference materials, gifts, insurance, meals, transportation, events, distribution, editing, equipment, filming, supplies, energy, heating, internet, legal fees, membership fees, location costs, interest, tax preparation costs, promotion, wages, and rental fees.

Figuring out which parts of a production might be eligible for tax relief is, in other words, quite complicated.

The United Kingdom example

Home to production sites like the famed Pinewood Studios, the UK is an attractive film and TV production destination.

Potential tax benefits include a payable cash rebate of up to 25% on UK qualifying expenditure for a film production company on any British qualifying film of any budget level. The way to qualify as British in this context is to pass the 'cultural test'. This is a points-based system with sections relating to content, cultural contribution, location, and cast and crew. Projects need to achieve at least 18 from a possible 35 points.

This illustrates some of the details to consider before deciding where to place a TV or film production.

Finding the funds

Further complicating the decision process is that many countries offer both direct tax rebates and co-funding projects through dedicated funds or special agreements.

Belgium’s Flanders Audiovisual Fund, Croatia’s bilateral treaty or the European Convention on Cinematographic Co-Production, Estonia’s Tartu Film Fund, France’s New Technologies in Production Fund for 3D productions, Norway’s Zefyr investments scheme, and the Cymru Wales Production Funding grants are just the tip of the proverbial iceberg.

Olsberg SPI has charted around 100 incentive offers at the country, state, and province level.

A Need for clarity

All the above leads to challenges for film and TV companies. Navigating the regulatory complexities of incentive and grant applications alongside potential audit documentation can be taxing – especially for finance departments.

One starting point is identifying potential production locations and comparing their tax incentive schemes. That, in turn, needs clarity around what parts of a production may be eligible for tax relief. The next step will likely be calculating what net savings the various tax schemes may generate. Here, it may be advisable to factor in how much time and money will be spent on documenting tax relief eligibility. 

In other words, it is a large-scale undertaking.

One might ask if this is an area where SME production companies and indie productions are at a disadvantage due to the complexity levels.

An additional point to ponder is whether Governments could – or should – work harder to make tax credit simpler and thereby more attractive to a wider spectrum of TV and film production companies? Or is the better way forward to upgrade the structures in place to support them with incentive and grant applications and related potential audits?