Written answers

Tuesday, 25 September 2018

Department of Finance

Film Industry Tax Reliefs

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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139. To ask the Minister for Finance his views on whether the current parameters for section 481 are rigid enough to prevent abuse in view of an allegation (details supplied); if an internal investigation into this case is being undertaken; the steps being taken to ensure that such a situation cannot occur; and when the findings of the report into the review of section 481 undertaken by the Revenue Commissioners will be published. [38430/18]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that they cannot comment on individual cases such as the allegation referred to in the Deputy’s question. However, they have provided the following general information in relation to the administration and audit 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 claim in respect of a film is therefore €22.4 million.

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.

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 where 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 was restructured in 2015 from an investor-based relief to a corporation tax credit, 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 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.

The review of the film relief currently under way in my Department is a cost benefit analysis, due under the Tax Expenditure Review Guidelines. The analysis is currently being finalised and is scheduled to be published on Budget day.

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