COVER FEATURE A productive PARTNERSHIP

ven those working flat out to cope wants to be a millionaire?’. He makes it as a British film – the first step to with the 31 January tax filing and through to his final question and a securing access to film tax credits. Epayment deadlines can’t have chance to win 20m rupees. When the missed the furore generated by show runs out of time and breaks for A British film? Slumdog Millionaire. The uplifting the night, the host Prem has Jamal Readers may be surprised that the film storyline offers an especially welcome arrested on suspicion of cheating. might be considered in any way British. Eescape from current economic Overnight, the police revisit the At first sight, its connection with the UK problems. The film has attracted questions one by one and Jamal is not clear; it was shot in India and has widespread approval, it is a UK box explains how he came to know each a largely Indian cast. Scratch the surface office number one, the winner of eight answer. As he does so, his extraordinary however, and the links start to be Oscars (including best picture and best life story unfolds, and he is allowed to revealed: it is a result of collaboration director for Danny Boyle), four Golden return to the show to try to answer the between two British media businesses – Globes and seven BAFTAs. It received a final question. Celador Films, and Film 4 – which total of 10 Oscar nominations. I shall look here at the tax incentives together primarily financed the film, In Slumdog Millionaire, Mumbai slum available to the UK film industry, and the along with a helping hand from HMRC kid Dev Patel plays Jamal Malik, who questions Slumdog Millionaire had to in the form of a producer film tax credit. takes part in the Indian version of ‘Who answer to win the prize of certification It has a British director, Danny Boyle

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The British film Slumdog Millionaire has won eight Oscars, seven BAFTAs and four Golden Globes. So it’s a good time for Steve Joberns to examine the tax incentives available to the UK film industry

(Trainspotting, 28 Days Later), was 1. There is genuine theatrical intent. written by British writer Simon Beaufoy 2. It qualifies as British, either as (The Full Monty) and the post-production a) culturally British, or work was carried out in the UK. b) an approved co-production (under one of the UK bilateral What relief is available? treaties or the European The principles behind the basic relief are Convention for Cinematographic that it should be straightforward to Co-production), and administer and easy to apply, the aim 3. At least 25% of the production being to ensure that tax relief is given budget (‘core expenditure’) must be for film production costs by matching ‘used or consumed’ in the UK. film production expenditure against The core expenditure is defined in contracted film income. Finance Act 2006, s. 34 and 35. The film tax relief is a government- approved scheme based around the The cultural test statutory accounts and the corporation The cultural test included in the tax return, totally independent of private application for a British Film Certificate funds such as the sale and leaseback under Films Act 1985, Sch 1 (as revised operators. It enhances film-making in 2007) includes a 31-point test. For production (or ‘core’) expenditure and the film to qualify it must be regarded as allows this to be used against trading British under at least 16 of those points. profits or, more commonly, to be At first sight it’s quite a straightforward exchanged for a cash payment test, although individual points can be from HMRC. rather marginal, leading to a result that The production tax credit is 25% of is a bit different from the overall picture. core expenditure in the UK for limited- The application to be granted a budget films under £20m (20% for all British Film Certificate can amount to other films), subject to a cap of 80% of a substantial package of documents, the total core expenditure for the film. including: Relief for limited-budget films where 80% ● the shooting script (in English); or more of the core expenditure is in the ● a complete synopsis or treatment of UK will therefore be no greater than 20% the screenplay; of the total core expenditure (16% for ● shooting schedule; films over £20m) before taking into ● production budget; account financing or distribution costs, ● a copy of the chain of title; which do not form part of the relief. ● a DVD copy of the finished project; ● the application form; Who qualifies for ● accountants’ report. film tax relief? Film tax relief is available to the UK expenditure production company that is actively The new rules are designed to bring involved in the pre-production, principal investment and expenditure into the UK photography, post-production and and counteract what many observers delivery of a film. As there is no considered to be a fundamental flaw in requirement to own the master negative the previous section 48 relief, where or film rights, the production company films could qualify for a substantial tax can be a special-purpose vehicle. Aspects break but with little production activity of the work can be subcontracted. A film actually having taken place on these qualifies for relief if: shores. Now, at least 25% of the core

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Although funds from the banks are limited, films are now taxpayer, however reluctant it may have been to put our money in. By contrast, seen as not quite so risky – and a bit of fun the film tax incentives have played a major role in promoting Britain as an important location in the film industry expenditure must be used and Cultural practitioners. This category looks and gone some way to securing British consumed here. This means for example at the people involved in making the jobs for British workers. The UK has a that under the current rules there are no film. Although most of the cast are number of co-production agreements benefits in having a British actor working Indian, the star Jamal is played by British and is keen to develop relationships with in India, whereas an Indian actor national and resident Dev Patel. Lead other key film-making countries, notably engaged and paid for by the film director Danny Boyle and scriptwriter India, Morocco, South Africa and China. production company and working in the Simon Beaufoy are both British, as are In the current economic climate, the UK would help. the producer, lead production designer, industry is faring well. Although funds lead editor, and lead sound designer. from the banks are limited, in a climate How did Slumdog qualify? The lead cinematographer is Danish, where traditional ‘safe’ investments such The 31 points are grouped into various which in a nod to matters EU counts as as bank shares have plunged and serious categories, including: British for this purpose. The well-known investors are spreading their money Cultural content. Because the film is not composer, record producer and around and trying to work out which set in the UK and the lead characters are musician A R Rahman, who wrote the banks are safe, films are now seen as not not English, no points were gained in music, is of course Indian, but overall quite so risky, with the prospect of a bit these areas. However, points were the film still picked up five of the of fun along the way. picked up for the subject matter and available eight points in this category. The British cultural test and film tax underlying material. The film is based on credit is also opening up new avenues a book written in the UK by Vikas Swarup, The overall result was that the film for collaboration. The test has been and the dialogue is recorded in English. qualified as culturally British. Although it broadly drafted (as can be seen from the wasn’t a borderline case in the end, it is example of Slumdog Millionaire) to Cultural hub. These tests review areas fair to say that without advance enable as many films as possible to such as filming and music. While planning and careful monitoring of benefit from being labelled ‘British’. As a nothing was obtained for principal expenditure, the decision might have result, many films that would perhaps photography, which took place on gone the other way. We enjoyed have previously gone elsewhere are now location in India, the whole of the working with the production team, who coming to the UK for at least part of substantial visual-effects spend was with provided first-class information, clearly their production work. In particular, after a UK-based company. The relatively identified points where my input was the success of March of the Penguins, minor expenditure in India on special needed and coped admirably with the natural history films are very much on effects did not stop the film picking up inevitable cultural issues. the ‘studio’ radar and can take both the points available in this advantage of the UK’s pre-eminent category. All the Government investment position in natural history filming and film’s post-production Recent government help, notably for the post-production work, while still work was completed in banking sector, has been criticised for shooting around the world to capture the UK. failing to secure a return for the the necessary photography of animals in their natural habitats. It is thus, more than ever, a creative A TAXING ROLE industry, and it is hoped that with the opening up of new co-production Before the film tax credit was introduced, the Department for agreements and greater incentives for Culture, Media and Sport (DCMS) used to be the arbiter of world film makers to come to the UK, what constituted a British film. Nowadays, while the DCMS the British film industry can continue to still issues the certificates, this is done at the recommendation look forward with confidence. of the UK Film Council Certification unit. As an adviser to both the DCMS and the UK Film Council, Steve Joberns has been involved with the current rules from the very beginning. At the Steve Joberns is a principal at invitation of the UK Film Council he has recently spoken at the Berlin Film Festival about the Shipleys – production accountants film tax credit regime and how the UK’s co-production agreements can help to generate to Slumdog Millionaire. He is a closer links with European film makers. He has a close working relationship with HMRC’s qualified lawyer, chartered film unit. accountant and chartered tax His work with Slumdog Millionaire began at the pre-production stage, helping with the adviser who specialises in dealing structuring to ensure that the film would qualify as culturally British and for the tax with independent film and incentives if at all possible. The work during production covered areas such as VAT, double television producers, film studios tax treaties, withholding tax and national insurance, as well as the ultimate audit of the and intermediaries such as production and liaison with the financiers. completion guarantors and banks

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