Committee on Budgetary Oversight debate -
Wednesday, 14 Dec 2022

SBO Tax Expenditures: Film Relief Section 481 Tax Credit (resumed)

Chairman

I welcome Mr. Andrew Lowe, Mr. Mark Byrne and Ms Emer O'Shea from Element Pictures.

Before we begin I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if witnesses' statements are potentially defamatory in respect of an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind Members of the constitutional requirement that they must be physically present within the confines of the place in which Parliament has chosen to sit in order to participate in public meetings. I will not permit a Member to participate where they do not adhere to this constitutional requirement. Therefore, any Member who attempts to participate from outside the precincts will be asked to leave the meeting.

I invite Mr. Lowe to make his opening statement.

Mr. Andrew Lowe

I thank the Cathaoirleach and members of the committee for inviting us. I acknowledge that the committee asked us to come last week. Because of our work commitments, we were not able to make it. I appreciate the flexibility and the courtesy extended to us in that regard.

I co-founded Element Pictures with Ed Guiney 21 years ago in Dublin. We started out focusing on opportunities to provide production services to inward investment television and feature film projects and reinvesting any profits earned to develop a slate of our own projects to bring to market. Section 481 was a key driver of the inward investment business and helped establish Ireland as a competitive location for international productions. It also provided a crucial component of the funding we put together to finance our own slate of films and television productions.

Ed and I grew up in the film and television business in Ireland. We have seen the industry develop from its infancy in the early 1990s, spurred by the success of Neil Jordan's "The Crying Game" and Jim Sheridan's "My Left Foot", to the present, with Ireland rightly considered a significant player in the global film and television industry, enjoying critical praise, awards and commercial success for the talent working here and projects shot here over the past few years. We are proud of the fact that the team at Element and the talent we work with have helped contribute to that success.

The films we have produced or co-produced over the years include "The Magdalene Sisters", "Adam & Paul", "Garage", "The Wind That Shakes the Barley", "The Guard", "The Lobster", "Room", "A Date for Mad Mary", "The Favourite", "Rosie", "Herself" and "The Wonder". In our early years we provided production services to many television series, including "Murphy's Law", "Inspector George Gently" and "Ripper Street", and developed and produced or co-produced television series such as "Prosperity", "Charlie", "Dublin Murders", "Red Rock", "Normal People", "The Dry" and "Conversations with Friends".

Our production company now has offices in Dublin, Belfast and London. We also branched into film distribution and film exhibition, with two arthouse cinemas in Dublin and Galway. As the company has grown, we have invested profits back into the development of our own slate of film and television projects, as well as in distribution and exhibition, motivated primarily by the desire to ensure that the films we and our colleagues in the industry in Ireland produce have an opportunity to be marketed and presented in the best possible circumstances to ensure they reach and resonate with as wide an audience in Ireland as possible. In different ways Screen Ireland, Enterprise Ireland and section 481 have all been instrumental in creating an environment that has nurtured and supported the development of the industry in Ireland as well as our company. We are very grateful for that support.

It has been gratifying for us to see Irish crew and talent we have worked with over the years develop their careers to the point that they are considered to be world-class at what they do, working on productions around the globe. We have equally seen staff working for Element rise from entry-level roles to senior staff with considerable levels of responsibility, enjoying significant creative and commercial success on the projects they produce for us. Our industry is a project-based one. The job of the producer is to initiate a project by commissioning either an original screenplay or an adaptation of a book to which the producer has acquired the rights. The next step is usually to attach a director and to work with that director to cast the film while identifying potential financing partners such as broadcasters like RTÉ, BBC or HBO, film distributors such as Disney or Universal, or streaming platforms such as Netflix, Amazon, etc., or some combination thereof. Having raised the finance, the producer, with input from the director, will select key creative heads of department such as the director of photography, production designer, costume designer, etc., who in turn will select key crew to make up their team.

As producers, we need to ensure we raise sufficient finance to cover the costs of shooting the project and we are required by the financiers, including section 481 legislation, to incorporate a designated activity company, DAC, through which all the expenditure will flow to defray the cost of production. All rights generated from all the performers and crew, writers, director and producers are assigned to that DAC in return for payment, and they are in turn assigned to the financiers in order to enable them to exploit the project in the relevant forum: cinema; television broadcast; or streaming signal.

Once we have completed and delivered the project to the financiers, the budget is spent and the cast and crew move on to the next project. In other words, ours is a freelance, project-based industry. The employment provided is fixed-term quality employment to suit the needs of the sector. That is the case globally and is by no means unique to Ireland.

As producers, we incorporate the DAC through which we engage the crew, mostly as employees, in some cases as Schedule D contractors. For the period that the crew are engaged, they are provided with quality employment and have all the rights and entitlements afforded to employees under employment legislation.

There has always been a strong culture of on the job training in the film industry. It is how anyone I worked with over the years learned their craft. The scale of productions now attracted to Ireland is testimony to the quality and breadth of our crew and talent pool here. Recent amendments to section 481 that have incorporated a training programme as a required component of the section 481 application have been welcomed by the industry and acknowledged as strengthening the commitment to training and development in our industry. We are very committed to training as a company. I mentioned colleagues who progressed through the ranks in the company to senior positions. We also ran an extensive training programme alongside the three years of production we enjoyed with Red Rock when we shot 112 hours of drama for Virgin Media with writing and directing workshops for new talent which were supported by Screen Training Ireland and the Broadcasting Authority of Ireland. On each of our productions, we put a skills development plan together and liaise closely with Screen Ireland on its design and implementation.

As the company has grown, we have increasingly expanded our horizons and shot films and television series abroad including in the UK, Canada, the US, Hungary, the Czech Republic, Croatia, and most recently in Zambia. A key factor in choosing an overseas location for our productions is the availability of a competitive local production incentive. Section 481 compares favourably with most of the incentives we have accessed over the years. The current competitive disadvantage with it is the cap on budgets. There is a strong rationale for the reinstatement of the regional uplift. I am happy to discuss both issues further if they are of interest to members.

In working abroad, we are constantly reminded of the quality of Irish crews, which is the legacy of the State's investment in section 481, and the focus on training from Screen Ireland. We are very grateful to the many Irish cast and crew who have worked with us over the years and have contributed greatly to the success of the projects we have produced. We have a responsibility to those cast and crew to ensure that they can enjoy quality employment whenever they work in Ireland and we are happy to play our part in ensuring that this is the case. We participate actively in industry bodies to work towards strengthening the policy landscape for the development of the industry in Ireland. We are great advocates for the power of collective agreements to best advance the interests of both workers and employers in our industry and have worked tirelessly over the years to help bring to conclusion the various collective agreements that are now in place in our sector. We welcome the opportunity afforded to us by the committee to meet it today to discuss the section 481 film tax credit.

Mr. Byrne is our group head of business affairs and Ms O'Shea is a production executive in Element Pictures. They are here to help to answer any questions.

Chairman

I thank the witnesses for being here and for that opening statement.

Deputy Richard Boyd Barrett

I thank the witnesses for coming in. Sorry for the delays caused by the voting in the House.

I will start with the final point that Mr. Lowe made, namely, that he would like us to consider increasing the cap relating to the level of investment that the State is willing to put into films. I would be happy to agitate for increased investment. In general, I am in favour of us spending more on arts, cultural endeavours and film. I do not think we spend enough. I am sure Mr. Lowe is aware that my enthusiasm for arguing for those things would be considerably blunted by my concerns about the extent to which the film producer companies, such as Element Pictures, which are in receipt of section 481 tax credits are complying with the requirement for quality employment and training as set out in the legislation and required under EU state aid rules. Those rules are clear that there is a requirement to meet an industry development test and a cultural test. Part of that industry development test is having quality employment and training. The EU directive is even more specific. I will paraphrase it. It is about creating a permanent pool of skills and uses that type of phrasing.

My concern is that the section 481 tax credit is not doing this at all. Instead, as Mr. Lowe stated, the people in the industry work freelance as opposed to having permanent jobs. The industry operates project to project. Very few, if any, people have any kind of security regarding their place in it. For some reason that I do not understand, the producer companies insist that they do not want to give any rights to employees to have a legitimate expectation from one production to another that they will be employed in the future. I do not see why the producer companies want to insist on that position. I do not see how it is beneficial to the creation and growth of an industry.

Surely developing and nurturing a crew and giving them security would be good for the industry? It would be good for attracting more investment and would be better at every level for the cohesion, skill and expertise of the industry if people were given security from production to production. Instead, it seems that producer companies, including the witnesses' company, insist trenchantly that they do not even have an employment relationship with the people who work with them again and again. The witnesses can tell me if I am wrong, but my understanding is that this is precisely what is going on. Some crew members would have worked on multiple productions that Mr. Lowe named, one after the other, going back to when Element Pictures was set up in 2001. Those people would argue, and I would agree with them, that they have those rights under the legislation for fixed-term workers, which Mr. Lowe referred to, and under the European Union directive.

However, the producer companies want to insist that they do not have any employees who are entitled to such contracts of indefinite duration. I stress that nobody is suggesting that that means companies would employ people permanently, full-time, for 365 days. Nobody is arguing that, but they would have a legitimate expectation and right, having worked on "Ripper Street" seasons 1 to 4, to be re-employed and notified that the company is making a film when Element Pictures next makes a film. The company would tell them that they have worked on its last few films and it is now letting them know that a job is available for them on the next film. Instead, Element Pictures insists it has no obligation to them. I will not go into individual cases but, in general, when employees take cases to the Labour Court or WRC, the response of the film producer companies is to deny any employment relationship whatsoever with these people, even though they know them. The companies know that people worked on the films or television series, but they say they do not have an employment relationship with those people, just that those people have an employment relationship with a DAC that no longer exists. I want to understand why companies want to do that.

I put it to Mr. Lowe that this is in breach of the Protection of Employees (Fixed-Term Work) Act 2003, the purpose of which is to prevent the abuse of successive fixed-term contracts. The point of the legislation is that one cannot keep employing the same people repeatedly on fixed-term contracts but if one keeps employing them repeatedly, one starts to have an obligation to them as an employer. Why would Mr. Lowe not want to do that?

I was not aware that the section 481 guidelines state that the producer company, not the DAC, is allowed charge the cost of full-time employees to the DAC. They are allowed do it, and it specifically uses the phrase "film crew". I presume Element Pictures charges for some of its administrative employees to the DAC and section 481 pays for that, yet Element Pictures does not want to do it for film crew even though they are explicitly mentioned in the section 481 guidelines as persons whom it could charge to section 481 under the DAC. Element Pictures could charge and have them as employees. That is quite a long question but Mr. Lowe will get the point. I would appreciate an answer.

I want to ask about the intellectual property end of it. Maybe I should do this separately or do them altogether.

Chairman

Add it to that question and then we will go back to Deputy Farrell.

Deputy Richard Boyd Barrett

Then there are the actors and performers. Their creative work is one of factors that is valuable in films from a commercial and financial point of view. It is fair to say that the way films potentially make any money is through the royalties or flow from the distribution and the performance of those films or television series, or their repeated downloading on Netflix or whatever. It is not at the time the DAC is set up for the production that money is made. The money is made on the basis of these being shown repeatedly.

While the DAC is set up, the producer companies are insisting that the actors and performers assign their rights to the intellectual property to the DAC and that their rights to future royalties or residuals are bought out from them in a contract that is significantly inferior in this regard to the pact equity agreement that operates in the UK. Indeed, the inequality in this regard is even more stark when one finds that some people are put on the pact equity agreement but others are not, or that if Element Pictures or any other company is operating in the UK, for example, it has to honour the pact equity agreement and the performers get the benefits of a better deal in respect of their intellectual property and the residuals that would flow to it, but many of them, when they work in Ireland, face an insistence on these grossly inferior buy-out contracts and sign away their rights. Why would we do that to our performers and, indeed, where do those rights then go?

While, as the producer companies insist, the employment relationship between film producers and crew does not survive the DAC, to use the parlance, they also seem to have it both ways because the benefit of the intellectual property rights survives the DAC. It goes somewhere. Where does it go when the DAC is wound up? For example, why, when the DAC is wound up, do the intellectual property rights not go back to the performers? Where do they go? Do they go to the producer company? Do they go to an international company? Did the people who signed them over to the DAC agree to sign them to an international company which they are required to do? Why, indeed, are they being asked to sign these buy-out contracts when the copyright directive insists that buy-out contracts should be the exception and not the rule? In Ireland, they seem to be the rule and not the exception.

Mr. Andrew Lowe

I thank the Deputy for that multifaceted question. I will do my best to try and respond on all aspects of it.

Deputy Richard Boyd Barrett

I apologise for the length of it, by the way.

Mr. Andrew Lowe

No doubt the Deputy will remind me if I miss anything that he needs me to elaborate on. I am sure Mr. Byrne and Ms O'Shea will want to feed in too.

There is a couple of aspects. I might start with the recruitment process, the employee relationship and the right to be re-employed to which the Deputy referred. The reality is on each and every project we recruit on the basis of the skills required for the job. That is the primary consideration. That goes right up and down the chain. We will start, as I described earlier, by developing the project with a writer and then we attach a director. With that director, we will identify the key creative heads of department that this director wants to work with. Typically, a director will choose a production designer, who, in turn, will have a particular construction manager he or she feels is appropriate for the job depending on the nature of the job, whether it is contemporary, a big period piece, etc. The costume designer will do the same. They will built their teams and those teams are chosen on the basis of the skills required for that particular job.

The situation the Deputy described where he asked why would one not just use the same people on every film is impractical, even if it were desirable, on the basis that crew chop and change, and go. They follow the work they are most interested in. They do not decide they are Element Pictures persons or A. N. Other company persons, and that they only work on that company's projects. They want to work with the most interesting directors who attract the most interesting casts and those are the projects they are most drawn to. That is primarily the consideration from a crew point of view.

I am aware the committee has had testimony from other organisations representing crew. Indeed, the WRC conducted an audit of work practices in the sector and talked at length about the point that the crew themselves were telling the WRC that they want to remain freelance. Freelance suits them because that allows them maximum flexibility to choose who they work for.

It is as I described earlier. The industry is organised globally on that level. Every country in the world operates in the way that I have described. There is not a single country in the world that operates in the way that the Deputy is suggesting. That is not because there is some global scheme to disadvantage workers. It is only the way the industry has evolved and the nature of the industry. It is project-specific work. People commit to doing it. It is very intense, hard work. People tend to come onto a film or a television series and see it through and then they may take time out, or they will switch and they will do something completely different. Not everyone works full time in the industry all year round anyway. They have other things going on. There is a multitude of factors at play.

The Deputy talked about the EU directive and the obligation to create a permanent pool. That is not contradicted by the freelance nature of our industry. Freelance and permanent are not mutually exclusive. We have a permanent pool of freelance crew who work in the industry. For me, the best evidence of that is people I started out with 25 or 30 years ago working in the industry when I used to work in crew are still there and they are all senior heads of department at this stage. They are the permanent pool of crew who have been created in an industry that did not exist 30 years ago. Before we had section 481 and section 35, we had no industry in this country. Section 481 and its predecessor, section 35, have helped create an industry here with a permanent pool of freelance crew who are working happily on different productions for different companies at different times.

I suggest the development test requires us to provide quality employment, not full-time jobs or Civil Service-type jobs for life.

It is fixed-term project-based work and the important thing is that, for the period that people are employed by us, they experience quality employment and career progression. They get training, where required. They are well-paid for the work they do and have satisfying work. At the end of the employment, they have a credit that helps build their careers and their CVs, opening doors for future employment. All of those things are in place. That has been a collective and collaborative effort from production companies and agencies working in the sector as a result of amendments to section 481 made in this House by the Deputy, his colleagues and Government over the years.

DACs are a commercial necessity. They predate sections 481 and 35. It is a standard business practice where multiple parties are involved in financing and completing a project, whether it is making a film or building a bridge. DACs are a vehicle through which all of the resources of the project can be funnelled and all the people working on it engaged. It is not correct to say that, as a director in a DAC, we would ever tell someone that their employment rights do not matter because the DAC is gone. As the production company, we sometimes get queries from people who worked with us six, seven, eight or ten years ago asking us to dig out a copy of their P45 or so on. We do not say that the DAC is gone. We go out to the warehouse, pull the files, find a copy of the document and send it on. During the period people are employed by the DAC, they have all their rights. In the event that they have an issue, they have recourse to industrial relations mechanisms in the same way as any other employee in the State. We have been involved in hearings at the WRC and Labour Court from time to time on behalf of companies that are no longer active. We go along anyway to provide information, to share and to respond on that DAC's behalf. I do not believe there is any evidence of any systematic problem at the WRC or Labour Court with respect to DACs that are dormant or that have been struck off. I am happy to be corrected on that but that is my experience. I have never noticed that.

Deputy Richard Boyd Barrett

Can I just-----

Chairman

The Deputy may make his point. I will then bring in Deputy Farrell.

Deputy Richard Boyd Barrett

On that point, in cases heard before the Labour Court, Element Pictures has said that no employment relationship with it can exist because the relationship is with the DAC. Screen Producers Ireland has made the same point. I have seen transcripts in which the companies have said that. They have said that the relationship was with the DAC. I will point out that all of the employment legislation, including the Protection of Employees (Fixed-Term Work) Act 2003, the Redundancy Payments Act 1967 and others, makes clear that companies that are associated with each other are to be treated as the same company. Mr. Lowe is surely not disputing that the DAC he sets up for any given film is a subsidiary of Element Pictures because, legally speaking, it is.

Mr. Andrew Lowe

We are not suggesting that we have nothing to do with the DACs. As I said in my opening statement, we incorporate a DAC to shoot the film or television series and all the financing and production expenditure goes through that DAC. The DAC offers employment to freelance crew for a fixed period because that is all it is required to do. Eight weeks are required to shoot a film or six months to shoot a television series and we plan accordingly as to how many people we are going to need and for how long. We raise the finance to pay for all those people and once that show is done and we have delivered on what we said we would do, there is no money left and no crew left. It is finished and completed insofar as it goes. That is not to say the project is finished and completed and that we, as producers, do not have an ongoing responsibility to administer the project in all its guises, including any employee-related queries that may be specific to the DAC but which we are happy to deal with, which we do. Nothing I have just said is inconsistent with saying Element Pictures does not directly employ production crew, because we do not. The DACs employ the production crew. That is a fact. That is why DACs exist. As it says on the tin, they are designated activity companies and are there for a specific purpose.

Deputy Richard Boyd Barrett

From an employment rights' point of view, there is no difference.

Chairman

I will allow Mr. Lowe to finish his point.

Mr. Andrew Lowe

I am not a lawyer. If what the Deputy says is true, there is recourse to the WRC or the Labour Court to argue that point. My experience is that, to date, none of those arguments have been substantiated in practice in the WRC or the Labour Court because the legislation is more nuanced that the Deputy has just suggested.

Deputy Mairéad Farrell

Gabhaim buíochas leis na finnéithe as ucht teacht os comhair an choiste. I hope we will not go straight into a vótáil again while I am trying to ask my questions. To follow on from the interaction with Deputy Boyd Barrett, we have been contacted by people who feel the employment situation they are currently experiencing is not good. This is impacting them. I have listened to what Mr. Lowe has said over the past number of minutes but what does he say to those people? What does Mr. Lowe say to people working within the film industry who are not happy and not pleased with what is going on?

Mr. Andrew Lowe

I thank the Deputy for her question. I will point to the fact that a lot of work has been undertaken by all sides in the industry to put in place frameworks and collective agreements to ensure that what the Deputy has just spoken about is not a factor. When I first started out in the industry, the industrial relations landscape was very different. It was quite confrontational and difficult. Over the years, employers and unions have worked very hard to find common ground and to modernise work practices in the sector. That has been done successfully. A number of collective agreements are in place in the industry. These cover construction and shooting crew. While Irish Equity is no longer signed up to the cinema agreement, it does have agreements for television and docudramas. All of those collective agreements include dispute resolution mechanisms to deal with any issues of the nature the Deputy is describing on the ground. There are also the mechanisms provided by the State that are open to any employee, that is, the WRC and the Labour Court. Those are the correct forums in which to address any issues of that nature.

Deputy Mairéad Farrell

From what we have been hearing from people, the reality seems to be that this is very commonplace. Mr. Lowe clearly has a different point of view but we have also listened to what other people have told us, which is that these issues are so commonplace that they feel the problem is far more systemic. I do not know if that is the correct word but Mr. Lowe knows what I am trying to get at. Single cases are probably not the answer to the problem. That is why we are concerned and are having this discussion in the committee. We feel that the issue is broader and that we should not focus on just one case at a time.

Mr. Lowe noted that on-the-job training is a common way in which people develop their skills. Does he feel that this is an appropriate form of development plan for the purposes of passing the industry development test? Can he explain what he means by that because it is important for us to hear? We have been very clear on what we have heard. It would be interesting to hear what Mr. Lowe has to say in that regard.

Mr. Andrew Lowe

I will briefly pick up on the Deputy's first question. Ms O'Shea may address the second, which related to training. In respect of it being commonplace, all I can say is that our experience does not tally with that. I know the committee has heard representatives from the guilds. I am not sure if any of the Congress unions have been here.

I know, on foot of these types of comments made previously, the WRC was asked to investigate working conditions in the industry. The commission produced a very comprehensive and constructive report. I believe that is the proper forum in which these types of complex industrial relations-type issues need to be dealt with. The WRC called for both sides to engage in collective agreements, which has now happened in many cases. The commission also acknowledged the role played by guilds. The guilds represent the vast majority of the crew who work in our sector. The WRC acknowledged that a lot of the crew were very happy, by and large, with how things work in the industry and were not looking for the sort of the changes that have been suggested here.

I appreciate the work the committee is tasked with doing. It is a complex industry which has a lot of moving parts, and this is another aspect of it. At least an independent State agency has been tasked with looking at this area and has reported on it. To the extent that any further work needs to be done on this, the agency could play role.

Ms O'Shea will talk about training.

Ms Emer O'Shea

I thank Deputy Farrell for her question. The Government has made an innovative move to link training with section 481. We are one of the only film and television tax credits worldwide to do so. When we apply for a section 481 certificate from the Department, we must also apply to Screen Ireland's section 481 development team for a training certificate, which is done by completing a skills development plan.

To give some information on a skills participant, a skills participant is defined as either a new entrant, a trainee, an animation junior or an upskiller. When we have completed the skills development plan, we organise to meet with the Screen Ireland team to discuss the plan and how the skills will be implemented on set. We ensure each skills participant has a mentor from his or her own department. On larger productions we might have a skills development officer who tracks progress reports from trainees, feedback forms and task sheets. On smaller productions, Element Pictures would look after that in-house, an example being if we had a project that perhaps only had post-production work being done in Ireland.

Element Pictures welcomes the recent inclusion of upskillers to the skills development team training plan because an upskiller is a skills participant who is not a new entrant, so this allows for career progression within the industry. In 2021, Element Pictures worked with 23 trainees and eight upskillers across four projects. We have seen crew go from new entrants to competent trainees. We have seen career progression and given jobs for the first time in senior roles such as directing, producing, editing and production management. Element Pictures recognises its responsibility. In terms of training and skills development, we are happy to play our part. Especially as the industry grows, we need to meet the demand and it is important we have sufficient numbers of trained people to do so.

Deputy Mairéad Farrell

I will finish with a question on intellectual property. We have heard from some witnesses who have appeared before the committee that they have noted issues surrounding the retention of intellectual property and even compliance with EU intellectual property protection law. Do the witnesses share those concerns? If they have concerns, how do they believe they could be addressed or rectified?

Mr. Andrew Lowe

The Deputy has prompted me to realise that I did not fully answer Deputy Boyd Barrett's previous question on intellectual property rights. I will make a few comments and then Mr. Byrne might answer.

On Deputy Farrell's question, I will wrap that into the question posed by Deputy Boyd Barrett, who I believe, not to quote him verbatim, described producers as insisting on performers having to assign their rights. While technically, yes, they may insist, in fact what he is describing is how the process works.

Intellectual property has a broad definition, and it includes copyright and performing rights. The people who generate those rights are actors, performers, writers, directors and producers. All of us, including producers, are required to assign our rights to the DAC in the first instance in return for payment to enable the DAC, which is the producers, in turn, to raise the finance to make the show in the first place, whether it is a film or television series. Those rights are then assigned to the financiers who ultimately are the end users, so that might be Netflix, the BBC for UK transmission or HBO in the US. Sometimes it goes to a few different parties while other times it might be a single end user. Those end users are not, by law, allowed to transmit, broadcast or exhibit the film or television series if those rights have not been secured, so it is a practical and technical detail. We all have to give our rights in order for the people who finance our shows to show them and generate the revenues the Deputy described earlier. There should not be any emotion around that. That is just the practical reality of how this works.

What is perhaps slightly complicated and charged is the entitlement to revenues, which is the bigger issue, in a way. The reality is, in the first instance, that however those revenues are generated, so it could be a cinema ticket or someone buying a DVD, downloading from iTunes or watching on Netflix, they all have different ecosystems. With a cinema ticket, for example, the cinema will take a cut out of that, the VAT obviously goes to the Government, and the balance goes to the distributor, which, in turn, deducts its costs of marketing the film, charges its commission and pays the balance to the collection agent that has been appointed by the financiers and producer to be an independent third party to collect all this money. The collection agent will then ask who is entitled to the revenue. The principle is that financiers must have their investment repaid. In the first instance, therefore, the revenues will go towards those financiers until their investment is repaid. It is only at the point where all the financiers have been repaid are there any revenues available for distribution. At that stage, the rule of thumb is half the revenues are retained by the financiers as their profit and the other half is available to be distributed among the various creatives who have been involved, so those are typically the performers, writers, directors and producers. Often, whoever funded the development might have a stake, so there are various other parties. That is broadly how it works.

The distribution of those revenues from a performer's point of view, whether that be an actor, writer or director, is usually determined by one of two things. Either they are party to a collective agreement that allows for the participation in those revenues or they have representation, be it an agent or a lawyer, who will negotiate directly with the producer for his or her client to have a share of future revenues. Sometimes it can be both. Therefore, an actor may have his or her own share of the revenue and participate under the collective agreement. These are mechanisms in place to deal with that.

As a production company, we are well used to structuring all our projects in that way and, wherever we shoot around the world, we sign up to whatever the conditions are locally. We have shot in Canada and US where there are collective agreements. We have shot in the UK where there are collective agreements for actors. Indeed, we have often used PACT-Equity here in Ireland for productions in which we have been involved. We have no problem in principle with that and we think that is a good thing.

As I have said, as a company we have put a lot of effort over the years into helping to create an environment where we can have Irish collective agreements that govern the Irish industry.

We were disappointed when we heard Equity had a change of mind and pulled out of the cinema collective agreement last year. We understand Screen Producers Ireland, SPI, is making efforts to try to encourage Equity back to the table. We would only encourage that. We think it is in everyone's interest that SPI and Equity try to address and resolve any outstanding issues Equity may have. Those sorts of collective agreements are the only way these royalties that are captured can then be distributed to their members.

Mr. Mark Byrne

On the notion of buyouts, it is correct that, historically, under the arrangements that existed with Irish Equity, there was never a formal collective agreement in place. Custom and practice existed over a number of years which provided ultimately for a payment to be made to the artist based on the number of days worked, which is how it tends to work internationally and which is like a performance payment. On top of that, the artist would be paid a further sum either as an advance against future revenues or as a full buyout. It is correct to say that, historically, under the Irish Equity system for cinema films, there was a buyout.

We were involved, as part of Screen Producers Ireland, in a negotiation with Irish Equity of an agreement for Irish cinema, in advance of the EU copyright directive coming into place, which would end the buyout arrangement and provide for a share of revenues to be paid to artists based on the success of the film. At a point in time when the film would turn into profit, the artist would be one of the people who shared in it. We successfully concluded that agreement with Irish Equity. The agreement not only provided for a profit share but also an increase in the daily rate that was paid to artists. Unfortunately, despite it being put in place and implemented, Irish Equity withdrew from that agreement after a number of months.

In doing so, Equity informed SPI that its suggestion was that productions would continue to rely on the old agreement. The old agreement is the one that provides for the buyout. That does not work anymore because, under the copyright directive, we need to provide a mechanism for artists to share in revenues going forward. The way of addressing that issue is for Irish Equity to come back to the negotiating table. The WRC has written twice to Irish Equity asking it to rejoin negotiations. Equity, unfortunately, has not responded either time to the WRC. We very much urge Equity to come to the negotiating table in order that we can end the buyout system.

The Deputy also mentioned PACT-Equity. Element Pictures is a member of PACT, the Producers Alliance for Cinema and Television, which is the equivalent of Screen Producers Ireland in the UK. Not all Irish producers are members. PACT-Equity, which is a negotiation between the UK producers guild and UK Equity, technically only applies to productions that shoot in the UK. However, it became common practice over a number of years for UK TV dramas shooting in Ireland to use PACT-Equity. Element Pictures has adopted that over a number of years or worked it on a number of productions. We would much rather use locally negotiated collective agreements. We have docudrama and TV drama agreements with Equity which operate very successfully. While in some instances it is an option to use PACT-Equity, we would much rather have a local collectively negotiated agreement in place.

Deputy Seán Canney

Much of the emphasis so far has been on the terms and conditions of people and how they are employed within the industry. I know the workload is very much fragmented in that you get a project and you have to do it. Some of the workers on the sets and elsewhere will follow a particular producer or theme with regard to films or whatever, but at the end of the day, what happens to these workers and how are they taken care of between gigs, as one might call it? There is such a lack of continuity. Will this improve on the basis that you have more work? There is considerable success with films that are being done. The witnesses mentioned some of the films with which they were involved and I congratulate them on these fine productions. How do they retain the staff? How many staff are working for Element Pictures at present? How many are permanent staff and how many are part time?

Mr. Andrew Lowe

I will endeavour to address all of that. I will take the Deputy's last question first. Our principal office is here in Dublin. We also have offices in Belfast and in London. We have 46 staff working between those three offices, with the majority here in Dublin. Those are full-time development, production, business affairs and finance staff who work across all of our projects all year round. We separately have a cinema and distribution business where we have a further 60 staff between Dublin and Galway. Many of them are full-time and some of them are part-time, especially in cinemas, given the nature of that business.

Going back to the Deputy's initial question on downtime between jobs and how people fare in that regard, there are a couple of things I would say about that. Not to overstate it, but the work tends to be quite intense. The days are long and there are bursts of very intense activity. Crew who work on television series in particular, because such series tend to be longer and could go on for five or six months, often tend to work those projects and then deliberately take time off. They may do a short film or a commercial, which is only a couple of days' commitment, but they do not necessarily want any other long-term commitments.

I have worked in the industry since the early 1990s and I have seen a sea change in that time. It was the case that there would be a couple of big, juicy projects per year and then slim pickings thereafter, and it was hard for people to sustain a career and their lifestyles on that basis. However, in truth, primarily due to the success of section 481 and the efforts of Screen Ireland, the Broadcasting Authority of Ireland, BAI, and even RTÉ, there is so much activity going on in the sector now that, as employers, we have the opposite problem. We struggle to find crew and it is very difficult to get people. They are so busy. Ms O'Shea spends a lot of time ringing around to heads of departments to try to establish who is available and to pencil people in for jobs we hope will come to fruition. We often find those people are already committed to other things. My sense of it is that downtime is less of an issue for crew than it might have been in the past. From the 1990s and into the 2000s, the working conditions that applied reflected the fact that it was freelance and not year-round employment. The rates of pay tended to reflect that. When people worked, they were well-paid, which also helped. There is a combination of things.

There are two practical things that could be considered by the committee. I know the timeframe for this Finance Bill may not permit this but it may be a discussion for the next 12 months. The first would be to look seriously at the question of the cap. I welcome Deputy Boyd Barrett's comments that he is supportive of the sector. I acknowledge he has been very clear on many occasions and that he would like to see more investment going into the sector, notwithstanding his concerns around aspects of it. The single thing that would change the landscape is looking at the cap. I will elaborate on that, if I may, and explain in technical terms. The section 481 is limited to €70 million of a budget.

If I was to come here tomorrow with a project of €150 million, only the first €70 million of that project would qualify for the section 481 tax credit. The rest of the spend would, effectively, be dead spend and there would be no additional benefit available. We run analyses all of the time. We ran an analysis recently on a big project where we run budgets for the UK, run budgets for Hungary, run budgets for Ireland, and where we try to compare what is available locally and what is the cost base locally. With a €150 million project one will find that the UK has no cap and Hungary has no cap. They are, straightaway, much more attractive locations for bigger projects of scale than Ireland is, because we have the cap. I say this as a company that has never come near the cap. We are not directly affected as we have never had an eligible spend close to €70 million, but perhaps we will one day. We are, however, indirectly affected and I will explain this point. The biggest budget film we made is a project called "Poor Things". It is directed by Yorgos Lanthimos who directed "The Favourite". He is a director we have worked with a lot. It is a period film set in Victorian London, Paris, Lisbon, Alexandria and on a steamship. All of those locations were to be built on sound stages. We wanted to shoot it here in Ireland. We had difficulty doing that so we looked at the UK and all over Europe. We ended up shooting in Budapest in Hungary. The entire film was shot there. Ardmore Studios was too small to take the film because of the size of the film, which had a budget of $60 million. Troy Studios in Limerick would have been perfect for us. We spent a year talking to Troy Studios but between chopping and changing, and as we developed the cast - we had Emma Stone, Mark Ruffalo and Willem Dafoe - we attached all of these people but their dates changed, and then we would go back a few months later to ask what their availability is like, and unfortunately, at the time, Troy Studios was full and they could not accommodate us then.

The biggest restraining factor for growing employment and growing the sector in Ireland is the lack of adequate studio space. For anyone who is looking to develop a film studio, the biggest issue they have is the cap on section 481. Those studios are such a huge capital investment and they need to know there will be a throughput of projects that can be counted on for a period of ten or 20 years.

If the cap was addressed it would bring in bigger budget projects. If they come in, it is worth remembering that the section 481 tax credit ultimately contributes about 24% to 25% of a budget. For every €1 that is attracted by section 481, €3 is coming in from overseas being spent on local goods and services. There is an opportunity to leverage ever greater investments from overseas on bigger budget projects. The UK has very successfully learnt that lesson and exploited it in the sense that they have built many studios and have huge productions of scale shooting in the UK, none of which we have the facilities to accommodate in Ireland. That is the first point. I apologise to Deputy Canney for the rather long answer to his question.

The second point may be of more interest to the Deputy on the regional development uplift. As a company, 12 years ago we went to Connemara to do a recce for shooting a film with a script we had called "The Guard". It was a first-time director. It was a challenging film to get finance for. We had a limited amount of resources. We concluded that unfortunately we could not afford to shoot in Galway because of the cost of bringing in the cast and some of the crew, putting everyone up and accommodation, and bringing in all of the equipment. It was just going to be too expensive. Happily, at the time the Irish Film Board had a pilot scheme which was a regional development fund. They were investing small amounts of money in projects that were prepared to shoot in the regions. We qualified for that. That extra money from Screen Ireland allowed us to shoot in Galway. Arguably, to the benefit of everybody involved and particularly creatively, "The Guard" ended up as a beautifully shot film, shot in the place where it is set.

Chairman

I hate to cut across Mr. Lowe, but unfortunately another vote has been declared.

Deputy Seán Canney

Before the Chair goes, I just want to say that the last point is very relevant and I thank Mr. Lowe for that. Regional development is right near my heart and is something we will be looking at. I will be promoting this for the sector. Well done and the best of luck to Mr. Lowe with everything.

Deputy Bernard J. Durkan

I wanted to say happy Christmas. I will devote the rest of my attention, for the remainder of the evening, to the vote.

Chairman

Fair enough, Deputy Durkan. To be honest, I agree with Deputy Canney. We will be writing a report and the committee in general is particularly interested in the regional uplift. Unless anyone wants to add a question, at this stage, I suspect it might be better to adjourn the meeting for the vote.

Deputy Richard Boyd Barrett

I was hoping to.

Chairman

Would the Deputy like to add some questions and we could do it by email? I definitely would like us to talk a little more about the regional uplift at some stage but I am not confident of getting the rest of the members back after this vote.

Deputy Richard Boyd Barrett

I was hoping to add on a bit more around the questions. What is the vote on?

Chairman

It is the Planning and Development and Foreshore (Amendment) Bill. Does the Deputy want to-----

Deputy Richard Boyd Barrett

It is a bit unfair on the witnesses but I would not mind. Will the Chair be going over to vote?

Chairman

I have to go to vote I am afraid.

Deputy Richard Boyd Barrett

Can the witnesses hang on for ten minutes?

Mr. Andrew Lowe

We are here to help, so yes.

Chairman

Okay we will go vote. We will be back in ten minutes.

Sitting suspended at 7.16 p.m. and resumed at 7.32 p.m.

Chairman

I know Deputy Boyd Barrett wants to come in but I will ask a few quick questions first. I wish to talk a little about the regional uplift. Because it is possible to watch back past meetings of the committee, I am not spilling any secrets when I say that many members of the committee were favourably disposed to the notion of regional uplift and can see its value. Part of the discussion around section 481 is that we could create a kind of ecosystem within Ireland of professionals and people who are particularly able in this area. I presume that is on a regional basis as well as a national basis. The ecosystem will not only be for Ireland as a whole but will be split into sections. There might be separate sections for the west and east. If the committee is considering the topic, could there a new generation of regional uplift? Could it be finessed to be more conducive to, and supportive of, the idea of a regional ecosystem of film expertise? Someone living in Spiddal or Cork might be attractive, through Government support, to a production company because that person lives in that area. It is not just that there would be regional uplift in activity in an area but that people in that area would also be employed. Is there a way of making the regional uplift more effective in creating that ecosystem?

Mr. Andrew Lowe

The truthful answer is that there is, but it will take time. One problem we found with the practical experience of regional uplift was that, for well-established reasons, it was only introduced for a short period of time. It ran for a couple of years and was tapered back quite quickly. From my personal experience, when I started in the industry in the early 1990s, it was fairly small and there were only a couple of projects per year. It took time for the industry to develop. That was the case in respect of all aspects of the industry, including post-production facilities and studios. It is a long-term game. The fact is the cinema business is over 100 years old. It is, in fact, 120 years old, particularly in established countries such as France, the UK and the US. We are latecomers to the process. The lowest hanging fruit for regional uplift and activity is incentivised activity in an area. The easiest thing to do is to have the circus come to town, set up and hire as many local people as possible. It is a little like how the industry has developed. When we started out in the 1990s, we were all, by and large, working on incoming productions. At the same time, we got the necessary experience to understand how the process works and managed to cobble together resources to start developing our own projects. That has increasingly become a more important dimension to the sector in Ireland. That is the best chance of engendering the sort of development the Chairman is talking about. Regional players play a crucial role.

Chairman

They are like anchor tenants that draw activity to them.

Mr. Andrew Lowe

That is absolutely the case. TG4 has been proactive in engaging with the regional creative community up and down the western seaboard. There has obviously been amazing success, particularly in Irish-language film, with "An Cailín Ciúin" the best recent example. That is something of which we can all be very proud. It suggests there is hope for the new generation of film-makers who are coming through and that they might be able not only to work in their own regions but in their own language, and to reach an international audience as well as an Irish one. It is notable that Kate McCullough, who was the director of photography on "An Cailín Ciúin", won best cinematographer at the European Film Awards in Reykjavik. That is an incredible achievement but it was only one among the many awards that the film has collected. I described earlier the interaction between the inward and the indigenous and I think there is a symbiotic relationship there. The bigger international productions that come to Ireland help to support the emergence of the indigenous sector because people who are working on bigger international productions are sustained for periods of time when they might be working on their own projects. If that symbiosis is the case between international and national productions, it is also arguably the case in respect of the interaction between national and regional productions. Some projects that come out of Dublin might shoot in Galway, Clare or wherever else.

We have all learned over the past two years that the way we work can change and has changed. There are people who are choosing to live elsewhere but given the project-based nature of our business, they can work in Dublin for a specific period of time before returning home to where they are based and spending their money to support the local communities.

There is great potential but it cannot be piecemeal. There must be a long-term commitment and it must be made a priority. If there is a long-term commitment to regional uplift, we will see real benefits of that approach.

Deputy Richard Boyd Barrett

The PACT-Equity agreement and intellectual property rights are contentious. The simple contention is that the PACT-Equity agreement is far superior. That is what workers want. I think our guests know that is what they want. Why not just give it to them? As simply as that, I ask the question. Why not just give it to them? It is a better deal and I do not understand why our guests would resist it.

On the point about film crews, it may be okay for some people to be freelance. That might be true for the heads of department that Mr. Lowe has described. It might be okay to be freelance for certain creative people. I put it to our guests that they are reflecting the viewpoint of a particular layer of people that arrangement suits. Mr. Lowe said that Element Pictures employs 46 people, many on a permanent basis. I suspect that if he told those people tomorrow they were on fixed-term contracts and did not have any security of employment, they would not be very happy about it. On one level, Mr. Lowe needs a group of permanent employees. Dare I use the terms "white collar" and "blue collar" here? I do not like that phraseology but that is what it looks like.

It looks like we can give secure employment to the white-collar workers but not the general operatives, for want of a better term. I am referring to the stage crew, transport workers and construction workers. They are telling us that freelance work does not suit them and that they need some kind of security. It is great for freelancers who might work for Element Pictures one week, Metropolitan the next week and another company the week after – good for them – but it is not so good for the person who makes the props, the driver, the stagehand and other such workers.

Mr. Lowe is saying that the Protection of Employees (Fixed-Term Work) Act 2003 just does not apply, even though one signs a declaration stating one will comply with it. He is actually saying it does not apply and cannot. There may be two or three categories excepted in the fixed-term workers directive but film is not one of them. Therefore, there is a problem. Even in the Abbey Theatre, there are certain people who have permanent jobs to make it work. They are not operating on a project-to-project basis. There are others who come in, such as the director of lighting or sound crew, who might also do this work somewhere else, but there is a permanent crew that makes things work. Some of the people I am talking about – Mr. Lowe knows who they are as they have worked for Element Pictures and Metropolitan time and again – are telling us they cannot get back into the film industry, even though Element Pictures says it is looking for crew. This is because the film producer companies do not want to acknowledge they have some obligation towards those who have worked for them time and again. That has to be addressed.

Chairman

There are two key points. I want to give the witnesses a chance to answer.

Mr. Andrew Lowe

I thank the Deputy for the questions. I might take the equity intellectual property rights question first. The Deputy asked why we do not give it. The reality is that we have done so, for many years. Particularly in the earlier years of the development of the company, we focused a lot on production services, particularly for television drama shooting in Ireland. I am referring to shows such as "Inspector George Gently" and "Ripper Street". Those shows were owned by a UK company. It developed those projects and our role was to provide production services and help figure out how to make the shows in Ireland and employ all the crew. However, we did not own the projects. On all those shows, we operated according to PACT–Equity criteria, but we were able to do that because the end user – be it BBC, Amazon or another – was happy with that and wanted it. The irony is that the agreement is a UK agreement, drafted, as Mr. Byrne explained, for UK crew and cast working in the UK under UK terms of conditions of employment. Our preference would be to have an Irish agreement that suited the needs of the Irish sector. The only way to get an Irish agreement is to get the relevant parties in the industry around a table and to negotiate and agree it, rather than asking whether we can borrow a UK agreement and apply it here. We do not borrow in this way in other aspects of our public policy, so I do not know why it is a good idea to do it for film.

Deputy Richard Boyd Barrett

We do, unfortunately.

Mr. Andrew Lowe

To reiterate what I said earlier, we are here today to talk about the perspective of Element Pictures; we do not represent the industry. We are members of SPI but it is for SPI to talk about its own policy. As members of SPI, we would very much welcome a collective agreement in Ireland that adequately remunerated and looked after all performers and enabled us to operate in a clear and transparent fashion. I would have no problem with that.

The Deputy referred to the Protection of Employees (Fixed-Term Work) Act 2003. I am not a lawyer but am quite familiar with the provisions of that legislation, precisely because, in respect of each and every section 481 application we make, I have to sign a statement that we will comply with the relevant legislation, particularly certain Acts listed. The Fixed-Term Workers Act 2003 is included. More particularly, section 9(2) of the Act is highlighted as a measure we will comply with. Before signing, I look up the Act just to make sure I understand what we are doing. Section 9(2) deals with where an employee has a series of consecutive fixed-term contracts. It states that where the terms of two or more fixed-term contracts exceed four years, the employee is entitled to full-time employee status. I can say with confidence, ignoring the DACs and considering only projects that Element Pictures has initiated, that we have never had an employee who has worked consecutively for four or more years on a series of fixed-term contracts. Therefore, I do not accept the assertion that we are not complying with the legislation and that it cannot apply. It does apply. If we ever had a production that went on for more than four years and had people on fixed-term contracts, there would be an issue. No doubt, it would have to be addressed.

Deputy Richard Boyd Barrett

We are not going to resolve this now but there are clear judgments at European level about the issue. What Mr. Lowe is saying is that somebody could have had 15 fixed-term contracts with Element Pictures DACs that did not apply over four consecutive years, therefore giving him or her absolutely no rights or an entitlement to a contract of indefinite duration. I presume Element Pictures does not have any employees who have acquired a contract of indefinite duration.

Mr. Andrew Lowe

Not in production. We have 46 full-time employees, as I described, in Element Pictures.

Deputy Richard Boyd Barrett

Not a single one has a contract of indefinite duration, even though he or she may have worked for Element Pictures ten or 15 times.

Mr. Andrew Lowe

If any of the individuals has had ten or 15 contracts over a four-year period or more, he or she automatically has an entitlement, by law, to a contract of indefinite duration. It is a fact of law whether that applies or not; it is not up to us to decide. It is ultimately a matter for law. We comply with all regulations and all legislation and we are required specifically to acknowledge that.

I am concerned that there is an impression being given at these hearings that there is a lot discord in the industry. That is not my experience. My experience, by and large, is that we have excellent crews who work extremely hard and are proud of what they do. We are very conscious as a company that we have grown up in the industry, that the industry has supported us and that we have done our best to support the people we work with. It is really important to us that everyone is happy and that we have a good working environment. We are not seeking to pull a fast one or avoid any responsibilities. The opposite is the case, actually. When we apply under section 481 and sign the statements, we do so in the knowledge that, as directors of the DAC, we have not only the usual responsibilities that any employer has in respect of its employees but also additional personal liability. In this regard, the Revenue Commissioners has not only its usual sweeping powers but also, where there is a breach of a certificate, the right to pursue directors personally for any liability. They can remove the limited liability that normally applies in a company situation and pursue directors personally. That is a unique aspect of the tax credit unique to Ireland. I am not aware of any other industry where the Revenue Commissioners have additional powers by which they can pursue a director personally. We have to take these provisions extremely seriously. If there were ever a suggestion that we were in breach of employment legislation, we would have to address that. We are, therefore, very careful to ensure we comply with all the regulations and requirements. It is my understanding that this is how the industry generally operates. I refer the Deputy to the Workplace Relations Commission audit of the sector, which by and large reached very positive conclusions about work practices therein.

Chairman

I thank the representatives very much for their time, attendance and input.

The select committee adjourned at 7.49 p.m. sine die.