In June 2013 the tax shelter regime for the production of audiovisual works and films has been amended to, on the one hand, put an end to certain unwanted practices and, on the other hand, further stimulate investments in animated movies.

The tax shelter is a tax incentive which is meant to encourage the production of audiovisual works and films. It allows a company that provides financial backing for audiovisual productions to benefit from an exemption of any retained taxable profits worth up to 150% of the invested amount. As a consequence of this tax exemption, an investment remains interesting for an investor even if the invested funds were not to be entirely paid back by the production company, which makes the system also very attractive for production companies.

For the tax exemption to apply, qualifying investors must enter into a so-called framework agreement with a Belgian production company or a Belgian establishment of a foreign production company. The maximum amount of the investment for which the tax exemption is granted is limited to €500,000. Up to 40 per cent thereof can be made through an (interest-bearing) loan which may be paid back over time. The remaining 60 per cent of the investment entitles the investor to an equity stake that yields a share in the profits of the film.

Just recently, the tax shelter regime has been amended on several points. 1

First of all, the part of the budget that needs to be spent in Belgium is now fixed at 90% of the collected funds. This is a more accessible rewording of the previous threshold which was set at 150% of the allocated sums, not including the loans.

A second amendment introduces the requirement that 70% of the production and operating costs incurred in Belgium must be used for costs directly related to the production of the work. Consequently, only 30% can be used for indirectly-related costs. The purpose of this amendment is to make sure that tax shelter funds are effectively invested in the production itself and to limit the leakage of such funds towards brokers and other intermediaries. Thus, expenses made for the “creative and technical production” are considered to be direct costs. Conversely, expenses for the “administrative and financial organization” are indirect costs. The Income Tax Code now holds two non-exhaustive lists of costs which are considered direct and indirect costs, respectively, whereby costs that are not included in these lists would have to be analyzed on a case-by-case basis.

The new regime also introduces a limitation on any guaranteed return on the purchase value of the ownership rights. Such a guaranteed return cannot exceed the average of the Euribor interest rate over a period of 12 months.

The investing company may not deduct costs, losses, depreciation, provisions, and amortization relating to the rights resulting from the tax shelter investment as professional expenses, nor can these be exempt. However, it was found that this rule can easily be circumvented by the transfer of the appropriate rights to a third party. Therefore, the scope of the prohibition is now explicitly extended to all taxpayers, except production companies that buy back such rights at a price not exceeding the purchase value.

Finally, for animated movies the maximum period during which the production and operating costs for the audiovisual work must be incurred is increased from 18 to 24 months after signing a framework agreement. The period during which the rights relating to the work are non-transferable and the period in which the sums must actually be paid are extended accordingly (from 18 to 24 months) for animated movies.

These amendments apply to framework agreements for tax shelter productions which are signed as from 1 July 2013, except the amendments relating to animated movies which apply from 8 July 2013.  

The Act can be found on http://www.moniteur.be