It has been a gold rush to rival the Klondike, only this time many of the prospectors have been rushing the other way across the Atlantic.
Since the UK introduced generous tax breaks in 1997, international co-productions have rocketed by some 400%. Canadian-UK co-productions mark the biggest single rise at 171%, although European co-productions have mushroomed by 543%.
This year, however, the UK may lose its lustre. Aghast at the amount of co-productions spending only a minimal amount in the UK, the UK government is pushing through proposals to double the minimum UK contribution to 40%. Canada is so far the only country named and shamed by the Department for Culture, Media & Sport (DCMS), but alarm bells are ringing from Italy to Australia.
For many producers and financiers relying on co-productions as their bread and butter business - indeed, for some companies, minority UK co-productions represent an entire business - the crack down is nothing short of disastrous. Many believe that raising the threshold to 40% will be prohibitive to working with the relatively expensive UK. John McVay, head of UK producers body PACT, called the proposals "utterly detrimental to getting business done."
The DCMS is expected to tweak its new co-production guidelines but one well-placed source predicted any changes will be minor. "The 40% level will not change. The guidelines will still name Canada, although they are changing some emphasis."
The problem for Government's tax department, the Inland Revenue, is the number of films hovering near the minimum UK spending requirement, generally 20%. Under Canadian regulations, a production receives tax credits only on its Canadian spend, encouraging filmmakers to spend as much as possible in Canada.
Under UK rules, investors write off their costs against 100% of the budget even if 80% is spent in Canada. By spending 20% in the UK, a film can secure 14% of its entire budget from a sale and leaseback deal or as much as 40% through one of the UK's new tax-based production funds.
At the centre of the storm are the tax-driven financiers and producers earning fees on entire slates of co-productions where the UK is a minority partner. Many never secure a UK release, theatrical or otherwise. Until recently at least, a shocking amount were not even theatrical titles.
"In some cases, it is not in the spirit of co-production, it is just finding a loophole and making a quick profit from the fees," says one industry executive.
The nightmare scenario is that the sheer number of minority UK co-productions accessing the tax breaks will force the UK government to close down the tax breaks when they come up for renewal in 2005. "There may not be anything wrong with a 30% co-production in itself, but there has to be some reciprocity," says one observer.
Studio Eight, one of the most active UK's most active co-producers with Canada, is quick to point out that its latest collaboration, family film The Great Goose Caper, is well above the minimum UK spend at 30%. But the company works with Canadian filmmakers on some six films a year but never on a majority UK production. The UK spend has been typically 40%, 30% or just over 20%. Typically, films shoot entirely in Canada, using the UK for some post and boast a few UK, crew members and technicians.
Studio Eight's Alex Brown acknowledges the need for reciprocity but argues in the real world, the balance is tipped firmly in Canada's favour. "It's mainly the way the Canadian system works," he says. "The more you spend, the more you get. In addition, the UK is so much more expensive."
In terms of UK co-productions with Australia or New Zealand, any abuse will be relatively small scale as the annual number of co-productions rarely hits double figures. Nevertheless, leading UK producer Nik Powell was alarmed enough by the end of 2002 to urge producers in New Zealand and Australia to protest against any attempt to raise the minimum UK requirement to 40%.
Europe, however, represents an even bigger potential problem than Canada. UK co-productions with other European countries have rocketed from just seven in 1997 to 45 in 2001. The biggest growth came from films made under the European Convention, which requires a contribution of only 10% as long as three co-producers are involved.
The UK-based Spice Factory, for example, has raised eyebrows with a joint venture agreement with Italy's Blue Star Movie to co-produce three to five pictures a year, shooting in Italy in English.
The first production, Five Moons Square, is directed by Italy's Renzo Martinelli, shot in Rome and stars Italy's Giancarlo Giannini and the US' Donald Sutherland. The story is also Italian, recounting the kidnapping and assassination of Prime Minister Aldo Moro. Spice Factory, which was not available for comment, is lining up a further six Italian films with Blue Star and Milanese art-house producer Albachiara. Spice Factory is also one of the most prolific producers of UK-Canadian projects, always as a minority partner.
Indeed, Canada remains the only country singled out so far, although film subsidies are expected to be on the agenda when the European Commission examines tax harmonisation in 2004. The number of co-productions with Canada, far and away the biggest single co-producer with the UK, has soared from 14 in 1997 to 38 in 2001.
Producers defending the status quo argue that figures have been distorted by the amount of TV co-productions. Until the UK last year closed a loophole allowing TV productions to qualify for film tax breaks, an estimated two thirds of UK-Canadian co-productions were small-screen titles such as The Hoobs - Episodes 1-40 and Relic Hunter Season 3.
Many argue it is worth UK tax money providing 14% of a film's entire budget to bring work into the beleaguered UK film industry. "As long as you are spending 30% and up, you really are spending money in the UK," says Wendy Hill-Tout, the Canadian producer of The Great Goose Caper. "We are employing British people."
But that is unlikely to assuage the Inland Revenue. "The Revenue is convinced people in the film industry are there to rip off the British tax payer," says one observer. "It's very worrying."