Comments on: Films: I spoke too soon http://edvaizey.mpblogs.com/2007/03/21/films-i-spoke-too-soon/ MP for Wantage and Didcot Tue, 6 Jan 2009 11:19:28 +0000 http://wordpress.org/?v=2.0.4 by: Mark Williams http://edvaizey.mpblogs.com/2007/03/21/films-i-spoke-too-soon/#comment-6300 Wed, 21 Mar 2007 10:32:28 +0000 http://edvaizey.mpblogs.com/2007/03/21/films-i-spoke-too-soon/#comment-6300 Ed, you are well informed about the taxation of film companies, but most businesses would die for the sort of support that has been given to the film industry though tax breaks for passive investors. These partnership arrangements simply subsidise the cost of individual projects that have just enough nexus with the UK to justify the tax break, but when the project is completed there is little evidence of an increase in the size of the indigenous film industry. There is a statistic that another film has been made but little in the way of enduring assets or created natural advantage. The Hollywood film producers love the tax break because the "investors" effectively cover 20% of their costs. The investors borrow 80% of the cost of the film and put up about 20% of the cost out of their own money. Although the deals look as though they are film distribution and revenue sharing agreements, they are actually secured by bank deposits placed by the production companies. The side of the deal that the UK tax man doesn't see is that instead of paying 100% of the cost of the film, the Hollywood producer simply puts 80% of the cost on deposit with a bank. Net net for no risk, the investor puts up 20% and gets 40% back in tax savings, and the Hollywood producer effectively pockets 20% of the cost of a project that he might well have made anyway. If that compensates him for any marginal extra cost of employing British technicians, then he will do so, but most of the production work and profit from the fiulm stays in Hollywood. And it is the tax payer who picks up the tab for all of this. Ed, you are well informed about the taxation of film companies, but most businesses would die for the sort of support that has been given to the film industry though tax breaks for passive investors. These partnership arrangements simply subsidise the cost of individual projects that have just enough nexus with the UK to justify the tax break, but when the project is completed there is little evidence of an increase in the size of the indigenous film industry. There is a statistic that another film has been made but little in the way of enduring assets or created natural advantage.

The Hollywood film producers love the tax break because the “investors” effectively cover 20% of their costs. The investors borrow 80% of the cost of the film and put up about 20% of the cost out of their own money. Although the deals look as though they are film distribution and revenue sharing agreements, they are actually secured by bank deposits placed by the production companies. The side of the deal that the UK tax man doesn’t see is that instead of paying 100% of the cost of the film, the Hollywood producer simply puts 80% of the cost on deposit with a bank.

Net net for no risk, the investor puts up 20% and gets 40% back in tax savings, and the Hollywood producer effectively pockets 20% of the cost of a project that he might well have made anyway. If that compensates him for any marginal extra cost of employing British technicians, then he will do so, but most of the production work and profit from the fiulm stays in Hollywood.

And it is the tax payer who picks up the tab for all of this.

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