When The Wind That Shakes The Barley picked up the Palme d'Or at Cannes last May it was the start of an undeniably upbeat year for the Republic of Ireland's film industry. Ken Loach's film, set and shot in and around Cork, showcased Ireland's locations to an international audience and 2006 also saw an upturn in production from Irish film-makers, not to mention an increase in new forms of funding and the emergence of promising talent.

Total expenditure in the Republic's film and television industries rose by $104m (EUR80m) to $309m (EUR238m) last year. The upturn was assisted by the initiation of the Broadcasting Commission of Ireland's Sound & Vision Fund (see box, page 37) and the increased contributions of the Irish Film Board (IFB), a major funder of both indigenous projects and overseas productions coming to Ireland to shoot.

The IFB backed 11 features last year. These included Julian Jarrold's Becoming Jane, starring Anne Hathaway and James McAvoy, about Jane Austen's early true-life romance in Ireland. The IFB invested $650,000 (EUR500,000) in the $15m film, which also raised $1.95m (EUR1.5m) Section 481 funds and shot for eight weeks at Irish locations.

Section 481 - the Irish tax break - as well as the IFB's new fund for international co-productions and Irish locations were pivotal in attracting the UK production to the country. The IFB also supported projects from several emerging Irish film-makers in 2006. These included:

- John Carney's Once, a musical about a busker and an immigrant. Shot in Dublin, the film premiered in the world dramatic competition at Sundance last month, picking up the Audience Award.

- Leonard Abrahamson's Garage, a follow-up to his award-winning Adam & Paul, about a petrol station attendant looking for love. The film, produced by Ed Guiney and Andrew Lowe at Element Films, was backed by the IFB, BCI, Irish broadcaster RTE, and the UK's Film4.

- Actress Marian Quinn's directorial feature debut, 32A, a $1.95m (EUR1.5m) coming-of-age tale set in the 1970s. Produced by Tommy Weir at Janey Pictures as an Ireland-Germany co-production with Flying Moon. Backers include the IFB, BCI and RTE. Beta Cinema is handling international sales.

Despite such bright spots, however, the long-term future of Irish film production remains somewhat uncertain. Much of the $309m (EUR238m) invested last year was spent on television productions, such as Showtime's The Tudors, which chose Ireland in order to get the benefits of Section 481, as well as the IFB's new international co-production fund, which is worth $2.6m (EUR2m) between November 2006 and November 2007.

Many Irish production companies have to rely on servicing these types of TV projects, and producing their own work for local TV, to survive.

The development-to-production time-frame for features is also protracted and high risk. With a few low-budget exceptions, producers are dependent on finance from outside Ireland, which remains a small market without a private equity contribution to the limited pool of production finance.

The environment for Irish film producers is "harder right now than at any time in the last 12 years," says Simon Perry, CEO of the IFB. "My own feeling is that for Irish producers to survive the current difficulties better than their European counterparts, a new fiscal incentive is needed which will provide more specifically targeted support for indigenous film-making than Section 481 currently does."

North of the border

Film-makers in Northern Ireland are also struggling to finance their features, and production has slowed as the Northern Ireland Film & Television Commission's (Niftc) innovative Northern Ireland Film Production Fund (Nifpf) scheme comes to the end of its first three-year cycle on March 31.

Through the scheme, the Niftc invested $294,000-$1.2m (£150,000-£600,000), up to a ceiling of 25% of the overall project costs for productions that demonstrate some relevance, as defined in the scheme, to Northern Ireland.

While the first tranche of Nifpf funding is pretty much spent, the Niftc believes it will be renewed in April, as Niftc chief executive Richard Williams confidently insists. "Effectively, we have the budget confirmed for the next financial year, which is pretty lucky as we are busy spending it. However, I don't have a firm commitment of the full amount and the period of commitment - we asked for a further three year commitment and ... for a good deal more money."

As a result of this there is some uncertainty regarding funding after March 31. Many of the films funded by the Niftc - including Nic Roeg's thriller Puffball, Tom Collins's Kings and Paddy Breathnach's Shrooms - were set up as co-productions with partners in the Republic. But there is a slowdown in these kinds of co-productions, which are already feeling the impact of tax regime change in the UK.

The introduction of the UK's new tax break limits possible co-production opportunities for producers in both the north and the south. Local producers are currently assessing the cost of the new UK tax credit, both in terms of the loss of the US studios' canny use of both jurisdictions' tax schemes for big-budget pictures, and the general loss of co-producing opportunities with UK partners on UK or Irish-originated projects.

"The real problem for us (in Ireland) is that UK persons working in Ireland no longer count as UK spend for the purposes of the UK incentive," says James Flynn of Dublin-based Octagon Films, Irish co-producer on Becoming Jane. "Also, a non-EU person working in the UK constitutes eligible spend there. This does not apply in Ireland so the studios will secure a return on their non-EU stars in projects that film in the UK."

As regards smaller-scale UK-Ireland co-productions, Flynn says: "There is no doubt that there will be a significant reduction in Irish-UK co-productions. The UK tax credit requires a 25% UK spend to qualify and in the past this could have been as little as 10% on tri-partite co-productions."

Ralph Christians of Magma Films, which specialises in animation, takes a different view. He sees potential for Irish companies to reposition themselves to benefit from the UK scheme while also accessing Irish funding. "I think the new regulations are a great chance for Irish producers to either co-produce with the UK or produce over there. Magma runs a company in Belfast, Ulysses Films, and we are happy about the changes, especially since we have a good relationship with the Niftc. On the positive side we can get more funding out of the UK, on the other hand we will be asked: why are we shooting in the Republic, can't we do everything in the UK (including Northern Ireland)'"

The IFB's Simon Perry picks up this theme. "Irish producers are making more and more Irish films in co-production with the North, spending part of their budgets there and receiving the gain of the slightly higher benefit available on expenditure there. Provided that a film can spend at least the 25% of budget in Northern Ireland/UK that is the qualification hurdle for the tax credit, it works. From a content, background and settings point of view the North is still Ireland, and crew and actors from the South attract the UK credit for the time they are working in the North. But it doesn't work for all films and is more hit and miss than the old sale-and-leaseback opportunity."

Republic of Ireland
Tax break Section 481, for large-scale productions worth up to $65m (EUR50m).
Subsidy Irish Film Board spend $188m for 2007-2013
- Broadcasting Commission of Ireland Sound & Vision Fund
- Eurimages member

Northern Ireland
Tax break UK Tax Credit
Subsidy Northern Ireland Film & TV Commission: Lottery and production funds, Irish Language Broadcast Fund.