Screen International's UK Film Financesummit meets today amid growing evidence that the European Commission may be uncomfortable with aspectsthe UK's new film tax plans.

The UK's new tax credit was announced in March this year,further clarified in April, and has been approved by the UK parliament. UK government bodies had previously indicated that European Commission State Aid approval would be finalised by the end of this month.

That timetable now looks unlikely. In a letter written toUK Member of European Parliament John Bowis seen by Screen International, Neelie Kroes,European Commissioner for Competition, gave some hints about the causes of the delay.

"When reviewing the filmsupport policy of an EU Member State, the role of the Commission is limited toensuring that the policy complies with the treaty obligations and, inparticular, the state aid rules for the audiovisual sector. The state aid rulesfor the audiovisual sector do not prevent an aid scheme from benefitingnon-European productions.

"However, as regards the treatment of Europeanco-productions in the UK film tax incentive scheme, the European Commissiondid express concerns. This has been one of the reasons for the delay inapproving this scheme," Kroes wrote.

Earlier this month, MichelleSutton, a member of the European Commission competition cabinet stated: "We have raisedconcerns with the UK authorities about whether the current Cultural Test forBritish Films meets the requirement of the Communication that aid be directedto a cultural product and that the aided production is cultural according toverifiable national criteria (in compliance with the principle ofsubsidiarity),"

Meanwhile, this week,another British MEP, Roger Helmer, has written to Commissioner Kroes, askingher about concerns expressed by the industry in Britain "that theUK governmentis using this tax shelter to favour,in the main, American audiovisual product,and that there areproblemsin the way the proposed Cultural Test will be applied."

A Commission spokesperson told ScreenDaily.com that "it is notunusual for State aid cases to take several months to be resolved."

Shewas unable to provide a time frame as to when the Commission will grant its approvalfor the UK tax relief. "The investigation is stillongoing," she said.

UK sources continue to insist that it is only a matter of time until thetax relief receives European state aid approval.The Department of Culture Media and Sport told ScreenDaily.com: "Discussions between the UK government and the European Commission on the state aid application for the new tax relief are taking longer than originally expected and are still on-going. We expect these discussions to be concluded shortly."

"I fully understand people'sanxiety over this," said a spokesperson from HM Revenue & Customs. "It hastaken longer than we anticipated, but the relief, when it is approved, willapply retrospectively from the first of April (2006) anyway. It's a nuisancebut it is not a disaster."

Various companies havesprung up in recent months offering to cash flow the tax credits while the UK film industry waits for European state aid approval to begranted. However, some independent British producers have balked at the ratesof commission being charged before banks feel safe enough to tax flow thecredit.

In a typical case, oneproducer told ScreenDaily.com, thecompany cash flowing the tax credit deal will take 25%of the total credit as well as costs.

The producer offered ahypothetical example of a $1.9m (£1m) feature. "If you spend a minimum of 25%in the UK you get $116,693 (£62,500) tax credits. Less25% gets you $87,515 (£46,875). Minimum legal fees are $28,000 (£15,000) plusaccountaincy fees of $28,000 (£15,000). So you net $31,500 (£16,875).Meanwhile, the company cash flowing the tax credit will get $54,608 (£29,250),which the producer pointed out would be "more than the film gets."

These issues and anomalieswill come under discussion during today's Screen International UK Film Finance conference. Pointing to thecritical juncture of the talks, some speakers from government bodies includingthe Department of Culture Media and Sport and HM Revenue & Customs whichhad been due to participate in the conference have pulled out.

"We took the decision towithdraw after a lot of thought," said one speaker, who had pulled out: "If we were tospeak, the number one question people would want answering, we can't answer.All we could do is stonewall and I don't think thatwould be to anybody's benefit."

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