An Introduction to Our Film Practice
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AN INTRODUCTION TO OUR FILM PRACTICE Horváth & Partners DLA Piper, Hungary INTRODUCING DLA PIPER IN HUNGARY WHY WOULD A COMPANY WHICH IS SUBJECT TO CORPORATE PROFIT TAX BE INTERESTED DLA Piper Hungary is actively involved in assisting IN INVESTING IN THE FILM INDUSTRY? international film productions in Hungary. We are well experienced in structuring the production, and drafting Such a company may: and negotiating the production contracts with local ■ reduce its tax base by the amount of the support; and film producers, whether in the form of work for hire (production services agreement), co-production or sale ■ reduce its tax payable by the amount of the support, of copyright agreements. We can advise producers on thereby achieving significant tax savings. how to structure the Hungarian productions to derive The Hungarian Corporate Tax Act makes it possible to the most benefit from existing Hungarian film tax rebates adjust the tax base and the tax payable by the amount paid and we give advice on how to secure all possible risks in for sponsoring film productions. The supporter of a film is the Hungarian environment. entitled to a tax refund amounting to 20% of the Direct Film Production Costs of the film, both in respect of the tax base HOW DOES THE HUNGARIAN FILM TAX and the tax payable. The Direct Film Production Costs of BENEFIT SYSTEM WORK? the film (i.e. the qualifying costs) and the applicable amount of tax refund (support) is established by the Film Office in The tax relief system introduced by the Motion Picture Sponsorship Certificates. The supporter pays the amount Act in 2004 (Act No. II of 2004) had a dual purpose: to of the support indicated in the Sponsorship Certificates make Hungary one of the most attractive and competitive to the Hungarian producer and on the basis of the film production locations within Central Europe and to Sponsorship Certificates reduces its tax payable and also create new resources for the Hungarian film sector. its corporate tax base by the amount of the support paid. The system has been revised by the EU, as a result of which certain changes were introduced in 2008 (such As of December 15 2012 the National Film Fund as the application of a cultural test), whereby the main Corporation (Nemzeti Filmalap Zrt.) received authorization concept of the indirect tax benefit system remained to set up a deposit account to collect tax money from unchanged and was approved by the EU. In 2011, the supporters. The supporters would receive the Sponsorship Office of the National Media and Infocommunications Certificate immediately when paying into the deposit Authority (“Nemzeti Média és Hírközlési Hatóság Hivatala”) account. The film productions can receive payments form has taken over the competencies of the supervision authority the deposit account as soon as the Film Office confirms their in respect of the Film Office. direct costs of production and the amount of the applicable tax benefit. In a given year the deposit account should collect With the help of the tax benefit system, the refunds (supports) up to HUF 7 billion (cca. USD 32 million) which is the available in Hungary are 20% of the film production costs average amount of support used in the last couple of years. incurred by the Hungarian producer in Hungary and partly outside Hungary in respect of pre-production, shooting and Irrespective of the deposit account the productions still have post-production work. the possibility to directly contract with supporters. This, however, due to different reasons, seems to be more and The source of the refunds is the pre-tax profit of Hungarian more difficult. economic enterprises that wish to reduce their tax payable by supporting film productions. Experience over the past The following table illustrates the advantages of support few years has proved that a sufficient amount of private for tax saving purposes through the example of two resources can be mobilised in order to support film fictitious enterprises. Both companies in the example productions via the tax benefit system. generated 1,000 units of profit before taxation, but the first company provides support for film production, while the other one does not. Taxpayer supporting film production Taxpayer not supporting film production Taxpayer’s pre-tax profit 1,000 1,000 Support for film production 100 0 Tax base 900 1,000 Tax payable (900 x 0.19) – 100 = 71 1,000 x 0.19 = 190 Total payment (tax + support) 100+71 = 171 190 Savings 19 0 02 | An Introduction to Our Film Practice We have a long standing experience in film financing “delegates work effectively to very capable colleagues”, but issues, including drafting and negotiating finance remains involved in all issues. The group recently advised agreements and security agreements, and making GK Films on a movie production and acted for Averna arrangements for ensuring a safe environment for both Technologies Inc. on regulatory matters. Senior associate producers and financiers. Zoltán Kozma gives “clear, considered advice”. Legal 500, 2012 We have experience in working with the Film Office in film regulatory issues. Our agreements have already been Intellectual Property and Technology: tested by the Film Office for film regulatory purposes and Horváth & Partners DLA Piper’s nine-strong group by the Hungarian Ministry of Economy in productions provides “fast and efficient” service and “tailor-made applied for and received a binding ruling for taxation advice” to film and television production companies on purposes. copyright issues. Additionally, it advises IT, energy and life sciences clients on data protection matters. We also have direct experience of drafting and Legal 500, 2012 negotiating cast and crew contracts, and any and all agreements necessary for the production of a film TMT/IP: in Hungary, for example location agreements, and Horváth & Partners DLA Piper’s combined nine-strong agreements relating to extras, stunts, set construction TMT and IP team has become the go-to firm for production companies, studio rentals, etc. companies filming in Hungary, and is highly valued by its clients. In 2009, practice head Mónika Horváth EXTERNAL RECOGNITION (‘our lawyer of choice in Hungary’) advised The Mob Film Company (TV) co-producing the television adaptation of The expertise of the team members practice is recognised Terry Pratchett’s Going Postal, handling contractual issues by the leading legal directories Legal 500 and Chambers & as well as financing and tax concerns. Other clients include Partners, which consistently rank us as one of the leading Tandem Productions, Mid Atlantic Films and Tiger Aspect film practices. Productions. “The overall service was exemplary”. TMT: The “always responsive and proactive” team, provides This market-leading team specialises in film industry work. “first-rate advice” to clients including Tiger Aspect It principally deals with film financing and media law issues Productions and AMRI. Mónika Horváth and Zoltán Kozma throughout production. Recent highlights include handling advised Mid Atlantic Seven and production-company Season the legal aspects of a Warner Bros./New Line Cinema film of the Witch on a Hungarian copyright sale. project, and drafting production contracts and security Legal 500, 2010 documents for a Showtime Networks television series. The team’s work also includes other aspects of TMT, for SOME OF OUR CLIENTS example advising Disney on media regulatory issues and acting on e-commerce telecoms deals. Peers describe team Mid Atlantic Films, 20th Century Fox, Warner Bros., leader Mónika Horváth as “an excellent lawyer and leading Viacom Inc., GK Films, HBO Television, Hat Trick film finance expert, with many years of experience”. Productions, Tiger Aspect Productions, Aramid Chambers Europe, 2012 Entertainment, Riforma Films, International Film Guarantors, Tandem Productions, The Mob Film Company, TMT: British Sky Broadcasting, All3 Media, Sony Pictures Horváth & Partners DLA Piper is well versed in film Entertainment, Pioneer Pictures, Showtime Networks, and television, and acts for clients such as ITV and the ITV Television. Hungarian Media Counsel. Practice head Mónika Horváth www.dlapiper.com | 03 YOUR KEY FILM TEAM CONTACTS Horváth & Partners DLA Piper, Hungary 49–51 Csörsz utca H -1124 Budapest T +36 1 510 1100 F +36 1 510 1101 [email protected] Mónika Horváth Partner Head of Intellectual Property and Technology Law T +36 1 510 1100 [email protected] Zoltán Kozma Senior Associate Intellectual Property and Technology Law T +36 1 510 1100 [email protected] If you have finished with this document, please pass it on to other interested parties or recycle it, thank you. www.dlapiper.com Horváth & Partners Law Firm in cooperation with DLA Piper UK LLP is part of DLA Piper, a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com Copyright © 2013 DLA Piper. All rights reserved. | FEB13 | 1661172.