The UK's Departmentfor Culture, Media and Sport is analysing a report on the effect of the country's tax credit on co-production activity with recommendations to ministers expected in the next few months.
The report from Oxford Economics, whichhas been seen by Screen,warns that theUK film tax credit has created adverse effects for co-productions andoffshore activity.
It points to a loss of around $105m (£70m) in co-production activity and indicates that in terms of UK productions, the tax credit has had a negative effect on UK suppliers.
It also warnsthe qualification criteria promotingthe UK 'cultural'element of production risks'parochialising' the domestic film industry, damaging international potential.
The report is now with the Department for Culture, Media and Sport (DCMS) for review.
A source close to the DCMS has said the report needs to beconsidered before it will be presented to Ministers. 'We have absorbed the top lines, but the deeper analysis still needs to be done.
'As there has been a dip in the level of UK co-productions, I imagine it will be looked at in the early part of this year.'
The Oxford Economics report translates the loss of gross co-production activity to a figure of around $105m (£70m). This is based on a calculation which considers 2006 co-production levels and the relationship between rates of relief and levels of UK activity.
It highlights the disadvantage posed by the tax credit for films requiring an overseas location and says that it offers incentives for films to be produced wholly in the UK.
While the tax relief acts as an incentive for domestic production activity, UK suppliers or services, such as equipment rental or model builders may suffer.
Where a production relies on a UK based supplier and where it is a UK qualifying film, no relief is available if the goods and services are used outside of the UK.
The report says that the UK film tax credit has 'influenced the levels of activity of facilities companies and suppliers, with these sectors expressing concerns that more use will be made of foreign suppliers'.
Currently domestic films engaging in some overseas production have no incentive to use UK goods and services, as in many cases it is more cost efficient to use local or third country goods and services from overseas.
Those interviewed by Oxford Economics said 'one of the consequences of the absence of relief on UK elements overseas will be to 'parochialise' the domestic film industry.' In turn this will undermine the ability of a film to sell internationally.
Inward Investment Production
The report also raises concerns about the future among those sectors of the industry benefiting from inward production. It says there 'is a feeling among suppliers to the major studios that host these large inward investment films that the 'used or consumed' test allows the film producers to bring many key staff with them as well as granting tax relief on the cost of major talent.'
Speaking to ScreenDaily, Nick Quested of Goldcrest Films International, a post-production company, says that the tax credit is only partially doing whatit wasintended to do.
The repercussions for co-productions are huge. 'As the owner of one of the largest film postproduction facilities in the UK I have personally felt what many in the industry are going through. We have had to reduce our workforce as the work just simply isn't there.'
Quested has also sent mixers to Belgium, Holland and Germany to complete films that would have posted in the UK under the previous incentive. He believes that the tax credit is perfectly suited for the Studio film, 'but Studio films are primarily made by American Studios. The core of the UK film business, the independent producers, has been cast aside.'
Those interviewed by Oxford Economics said it is much easier to get necessary work permits for overseas staff coming to the UK than it is to get permission for UK staff to work overseas.
The report recommends that the tax credit is extended to elements used overseas. Equivalent systems in Europe and further afield allow nationals tofilm outsidethe country.
Quested says that British labour working abroad should count as good spend if they are paid in the UK. 'If the government would implement this, co-productions would then become viable.
'The volume of work would return to the sale and leaseback years, the economy would benefit from the additional expenditures, there would be more British people employed, and we would have a vibrant exciting industry again.'