The thinking behind the Irish government's decision to grant a reprieve to Section 481 in last week's Budget is revealed today in a major PricewaterhouseCoopers (PWC) report.
The report was commissioned jointly by the Irish Film Board and the Department of Arts, Sport and Tourism and was sent to the Department of Finance in mid-September. It is published today on the websites of the Film Board and the Department of Arts, Sport and Tourism.
The terms of reference posed two questions for PWC: "is there a compelling economic and/or competitive justification for continuing fiscal support for the Irish film industry after 2004'"; and, "If such a compelling justification exists, what form should the incentive take'"
The report concludes both that there is a compelling economic and competitive justification for continuing fiscal support for the industry beyond 2004 and that Section 481 is "the appropriate form that the incentive should take going forward."
The report comes to a third conclusion, that "a number of features of Section 481 in its current form are in need of improvement, including the certification and compliance procedures, and the attractiveness of the relief to big-budget productions vis-à-vis those available in other jurisdictions."
PWC then make five recommendations, the first and last (in part) of which have been adopted by Finance Minister Charlie McCreevy, while the remainder will dealt with under guidelines being adopted in January by the Department of Arts, Sport and Tourism and the Irish tax authorities, the Revenue Commissioners.
- Section 481 be retained for a minimum period of five years.
- Appropriate specialist expertise be brought in to the Department of Arts, Sport and Tourism, as required, in the certification of budgets submitted as part of the Section 481 application process.
- Directors of Section 481 production companies should be required to make a statutory declaration that confirms that the certified Irish production spend has been incurred.
- The Revenue Commissioners should subject the Ireland spend figures of at least two Section 481-incentivised production companies to audit on an annual basis.
- Production companies should be permitted to raise Section 481 funds on between 30% and 50% of Ireland expenditures in excess of the existing cap, i.e. Euros10.480m up to a maximum of Euros 50m.
PWC analysed the operation of Section 481 over the years 1999 to 2001, taking 'a deliberately conservative approach to the estimation of the costs and benefits.' They trawled through the Irish spend of sixty six individual film projects over the three-year period and concluded that there was an average annual net benefit to the exchequer of Euros 2,208,777 for each of the years under review. Broken down by year, however, there was a net cost to the Exchequer of Euros1,827,136 in 1999, a net benefit of Euros 803,375 in 2000, and a net benefit of Euros 7,650,093.
"There is a relatively strong correlation between project size and the likelihood of a project yielding a positive return to the Exchequer," the report states. "Related to this, and reflecting their typically larger size, off-shore productions are more likely to make a positive return to the Irish Exchequer than their often less well-resourced indigenous counterparts or co-productions."
Given that PWC's brief was purely economic they draw no cultural conclusions from this finding, a conclusion in which local producers may see a somewhat discomfiting truth. That is that the use of a tax mechanism is less costly (in purely economic terms) as an incentive for large-scale off-shore production filming in Ireland than it is as a support for usually much lower budget indigenous productions.