In December 2018 the Finance Act, 2018 (the “Act”) was enacted. Section 26 of the Act extended the tax credit available to film and television productions pursuant to Section 481 of the Taxes Consolidation Act, 1997 (as amended) (“Section 481”) to 31 December 2024 and introduced a number of changes to the current system for obtaining the Section 481 tax credit.
In order for Section 26 of the Act to become effective a commencement order is required. Last week the Finance Act 2018 (Section 26) (Commencement) Order 2019 (Statutory Instrument 120 of 2019) was enacted. It commenced all parts of Section 26 with effect from 27 March 2019 except the regional film development uplift and the extension of Section 481 until 31 December 2024.
In addition, the Film Regulations 2019 (the “Regulations”) were enacted with effect from 27 March 2019. These regulations set out in detail the rules and procedures surrounding the obtaining of the tax credit. The Regulations apply to all applications submitted for the tax credit after 27 March 2019 and include transitional arrangements which are described below.
Key features and amendments
The key features and amendments brought into effect by Section 26 of the Act and the Regulations are as follows:
Prior to 27 March 2019 an application for the tax credit was made to the Revenue Commissioners (“Revenue”) who assessed various aspects of the production and determined the amount of tax credit the production should, subject to the satisfaction of certain conditions, be entitled to. Revenue liaised with the Minister who assessed whether the production should be considered eligible for certification having regard to certain cultural and/or industry development criteria.
Under the new system a producer company will apply to the Minister for a certificate which confirms the above-mentioned criteria have been satisfied. Subsequent to this the producer company may apply to Revenue for payment of the film corporation tax credit in instalments of 90% and 10% or in a single instalment of 100%.
In essence, the current system is changing to a self-assessment model in which the Minister will issue a certificate limited to the matters detailed above and Revenue’s role will be principally focused on the payment of the tax credit.
2. TIMING OF APPLICATION FOR THE TAX CREDIT
The Regulations require that an application be made by a producer company to the Minster at least 21 working days (i.e. 4 weeks and 1 day unless a public holiday occurs during that period) prior to commencement of the “Irish production”, defined as the date on which the qualifying company commences the main body of the Irish production, which is, depending on the type of production work: (a) the commencement of the principal photography, (b) the commencement of animation drawings, (c) the commencement of the first model movement, (d) the commencement of Irish post production, or (e) the first day of Irish Digital Shot production.
In respect of productions which have commenced production in Ireland prior to 27 March 2019 but no application has been made to Revenue for the tax credit, an application may be made up to 30 April 2019.
In respect of productions which have commenced production in Ireland prior to 27 March 2019 and an application has been made to Revenue but the Minster has not yet issued its authorisation, the application to Revenue will be treated as having been made to the Minster.
The Regulations are silent as to how applications for the tax credit will be dealt with if made to Revenue prior to 27 March 2019 and the Minster has not issued its authorisation but production has not commenced in Ireland. Presumably those applications will continue to be dealt with under the system in place prior to 27 March and we will be seeking clarity on this point from the Minister.
It is worth noting that it appears to be no longer necessary to notify Revenue of the first incurring of eligible expenditure after an application has been made for the tax credit.
It is also worth noting that the guidance note does not contain any expected timeframes for the Minister’s processing of applications for certification or Revenue’s processing of claims for the tax credit.
3. DEFINITION OF “PRODUCER COMPANY”
Section 26 of the Act provided for an amendment to Section 481 so that the producer company is no longer required to be a trading film/television production company prior to application for the tax credit. Previously a producer company had to be incorporated and trading in film/television production for a period of 21 months before it became eligible to make a claim to Revenue for the tax credit.
However, there is an apparent ambiguity in Section 481 that has not been clarified in the Regulations or guidance note. Section 481 states that at the point in time that an application is made to the Minster for a certificate the producer company must have already filed a corporation tax return but this corporation tax return is supposed to relate to the accounting period preceding the claim to Revenue for the tax credit. It is therefore unclear if a corporation tax return must be must be filed by the producer company in advance of an application to the Minster or in advance of a claim made to Revenue – and consequently it is not yet clear how old the producer company must be before being able to apply to the Minster for certification.
4. PRODUCER COMPANY CANNOT BE AN UNDERTAKING IN DIFFICULTY
A producer company may not be regarded as an “undertaking in difficulty” within the meaning of the Communication of the European Commission on Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty.
As part of the application to the Minster for certification, the producer company is obliged to provide a declaration that neither the producer company nor the qualifying company nor any undertaking those companies are part of are regarded as an “undertaking in difficulty”.
5. CATEGORIES OF PRODUCTION ELIGIBLE AND INELIGIBLE FOR THE TAX CREDIT
The types of productions eligible for the tax credit are largely unchanged except that short films of feature quality are now eligible and clarifying wording has been added to indicate that television drama may be either feature length or a multi-episodic series.
The types of productions not eligible for the tax credit have been expanded to include live programming; localised versions of licenced international formats; and productions which comprise all or substantially all stock footage (other than documentaries). Clarifying wording has also been added to indicate that regardless of whether reality television is scripted or unscripted it will not be eligible.
Productions produced for domestic consumption in one country have been removed from the list of productions not eligible for the tax credit; that is to say, such productions are potentially eligible for the tax credit.
6. CLAIMING PAYMENT OF THE TAX CREDIT
The producer company may claim the tax credit in instalments of 90% and 10% or in a single instalment of 100%.
Similar to the system in place prior to 27 March 2019, the initial 90% instalment can be claimed if either (i) evidence is provided that an amount equivalent to not less than 68% of eligible expenditure has been lodged to the production account held by the qualifying company OR (ii) either of Screen Ireland or the Broadcasting Authority of Ireland (BAI) issue a certificate confirming that its requirements have been fulfilled to the extent it has agreed to release its production funding. Unlike the previous system, however, this certificate under part (ii) can also be issued by equivalent bodies established in an EEA state. Unfortunately there is no additional information on the identity of these equivalent bodies.
Under the previous system there was a fourth option for claiming payment of 90% of the tax credit i.e. a guarantee, surety bond or similar instrument confirming a liability to repay the 90% instalment in the event of a failure by the producer company to comply with Section 481. This option appears to be no longer available.
Under the previous system the option to claim payment after an amount equivalent to not less than 68% of eligible expenditure has been lodged to the production account had to be supported by (A) a letter from the producer company’s accountant confirming that the amount in question had been lodged to the production account, and (B) a letter from the producer company’s solicitor confirming that the financing agreements for the production have been executed and the conditions of those agreements for funding to commence have been satisfied. These letters are not mentioned in the Regulations or the guidance note and clarification will be sought as to whether such letters are required in those circumstances.
In addition to providing the documentation mentioned at (i) or (ii) above, the producer company must also provide an extensive list of documentation and information to Revenue. This list bears a striking resemblance to the list of documentation required to be supplied to Revenue in the context of an application for the tax credit prior to 27 March 2019. It similarly requires a structure diagram; executed financing agreements for the production; executed pre-sale and distribution agreements for the production; chain of title documents; production budget (top-sheet and a detailed breakdown); and a list of heads of department.
7. EMPLOYMENT AND TRAINING
As part of the application to the Minster for certification the producer company and qualifying company will be obliged to provide a signed undertaking in respect of quality employment.
In this undertaking the companies undertake they will: comply with applicable environmental, social and employment law and collective agreements; comply with all statutory requirements of an employer; have in place written policies and procedures in relation to grievances, discipline and dignity at work; and provide details of any work place commission decisions in relation to them or other companies in the “film group” (as that term is defined in the Regulations).
As part of the application to the Minster for certification the producer company must also prepare a detailed skills development plan in the format set out in the guidance note. According to the guidance note this skills development plan must be agreed in advance with Screen Ireland and the plan endorsed by that organisation save that if eligible expenditure is less than €2,000,000 the skills development plan may be supplied directly to the Minster (presumably this means that Screen Ireland is not required to endorse the plan in those circumstances).
It is worth the new system refers to “skills development participants”, rather than trainees, and requires that a skills development participant is engaged for every €177,500 of corporation tax credit claimed, up to a maximum of eight participants.
8. SCREEN CREDIT
Prior to 27 March 2019 each production was obliged to include in its closing credits in a prominent position immediately after the cast and crew credits the following: “Produced with the support of incentives for the Irish Film Industry provided by the Government of Ireland” and, if applicable, “Filmed on Location in Ireland”.
Section 26 of the Act provides that when considering whether to issue a certificate the Minister will have regard to the nature and detail of acknowledgement in the “opening titles or closing credits” of the production. Presumably this is referring to the above credits although it is possible the wording of these credits could be revised.
The draft guidance note appears to deviate from Section 481 in indicating that the Ministerial certificate will include a condition that the details of the acknowledgement of the award of the tax credit is to be included in the “opening titles or credits”. This appears to mean that the above credits will have to be included in the opening titles or credits of each production, an approach that is unlikely to be practical on a number of productions. We will be seeking clarity on this point from the Minster.
9. REGIONAL FILM DEVELOPMENT UPLIFT
The Section 481 tax credit is equivalent to 32% of the lower of (a) Irish eligible expenditure or (b) 80% of the total cost of production or (c) €70,000,000. Where a film or television production is being produced in an assisted region it may be entitled to an uplift in the amount of the tax credit as follows:
- From date of commencement to 31 December 2020: 37%
- 1 January 2021 to 31 December 2021: 35%
- 1 January 2022 to 31 December 2022: 34%
- 1 January 2023 to 31 December 2024: 32%
Section 481 defines an “assisted region” as an area specified in paragraph (1) in the Annex to the Commission Decision C(2014) 3153. It seems that the only parts of the country that are not included in the definition of “assisted region” are Dublin (excluding North Bull and Lambay islands), Cork (excluding some islands), Kildare, Meath, Wicklow (excluding parts of Arklow, Kells and Athy from those three counties).
In deciding whether the regional film development uplift will apply or not the Minister will have regard to whether there is limited availability of individuals with suitable experience or training who habitually reside within a 45 kilometre radius of the place of production and in respect of the areas of expertise where there is limited availability, whether the company will provide training for individuals that habitually reside within that 45 kilometre radius.
That part of Section 26 dealing with the regional film development uplift has not yet been commenced. In addition, the guidance note and application form do not provide for the regional film development uplift and therefore there is little detail as to how the uplift will be practically administered when it is commenced.