Dáil Éireann Debate, Thursday - 11 October 2018
46. Deputy Pat Casey asked the Minister for Finance the steps he has taken to investigate reported breaches of the tax benefits enjoyed by the film industry here; and if he will make a statement on the matter. [41557/18]
View answerI am advised by Revenue that they cannot comment on individual cases. However, they have provided the following general information in relation to the administration and review of claims for the film tax credit under Section 481, Taxes Consolidation Act 1997.
Under section 481, in general terms a company which produces a film can claim a payable tax credit of 32% of the lower of:
(a) the eligible expenditure incurred on producing a film,
(b) 80% of the total cost of production of the film, or
(c) €70 million per film.
The maximum credit a company can currently claim in respect of a film is therefore €22.4 million.
A further time-limited regional uplift, which I announced in Budget 2019, will allow in certain circumstances for up to an extra 5% credit, the details of which will be published in the Finance Bill.
The credit is payable in two instalments. The first instalment of 90% of the credit is payable before the film is produced, based on the production budget. The final instalment is due when the film has been completed and is based on the actual amounts spent.
Eligible expenditure is the amount that the producer company spends in Ireland, wholly and exclusively on producing the film. Amounts spent on the film outside of Ireland do not qualify for the tax credit. However, where the credit is calculated based on 80% of the total cost of production, Revenue must have regard to the amounts incurred outside of the State as an increased global budget can lead to an increased credit.
By way of background, it is important to understand exactly what companies can claim the film tax credit. The company that claims the credit must be an Irish producer company. The Irish work on the film must be carried out by a special purpose company which is wholly owned by that Irish producer company. Where the film is not a fully Irish production, for example it is a multi-jurisdictional production or a co-production, the Irish producer company will often organise the Irish production on behalf of an international production company. In those cases, it is the international production company who has full knowledge of the global budget and of the make-up of the items in the Irish budget.
Recognising the potential risks presented, the administrative framework of the relief requires that a company’s application for the credit must include:
(a) an auditor’s report detailing the eligible expenditure, the global budget and details of related party transactions, and
(b) a solicitor’s letter detailing that they have reviewed the legal agreements and that 68% of the funding has been lodged to the company’s bank account (a requirement prior to Revenue releasing any amounts of the payable tax credit).
The payable credit is available to a film that has been approved by the Minister for Culture, Heritage and the Gaeltacht and which has been certified by Revenue. Section 481 provides that Revenue may refuse to certify a film if they have reason to believe that the budget, or any part of the budget, is inflated. They may also refuse to certify the film if they are not satisfied with the commercial rationale for the corporate structure used for financing, distribution and other similar activities. As with all tax reliefs, the greatest risk of inflation is found in related party transactions including through corporate or financing structures that facilitate circular flows of cash.
I am further advised by Revenue that the time taken to process applications for relief under section 481 has increased in the last year, largely due to increased scrutiny on the expenses included within the “eligible spend” in 481 applications. As the relief in its current form was introduced in 2015, the first films which have been made under this new format relief were being completed in 2017 which is when Revenue were first able to review the actual spend on completed films and the amounts being included in the claims for relief, as signed off upon by the auditors. The largest adjustments arising from this review process are in respect of inflated related party expenditures, and discussions are ongoing between my Department, Revenue and the Department of Culture, Heritage and the Gaeltacht in relation to options to protect the Exchequer and give greater clarity to producers claiming the credit.
