Ever since the Government published its consultation document for thereplacement of Section 48 and 42 in July, accountants and producers have beenquick to run their slide rules over the new tax credit proposals to see whatthey are really worth.

There were several immediate areas of concern. One was inward investment- would the new payable tax credits really offer a strong enough incentive for Hollywood studioslooking to set up camp in the UK' Theearly indications were that for films costing over £20m, the new proposals weresignificantly less attractive.

Another worry was the future of co-production. In recent years, thanksto sale and leaseback, the UK has beena co-production hub. The huge downside, from the Treasury's point of view, hasbeen 'relief tourism' from foreign films taking advantage of Britishtax breaks without providing any real benefit to the local industry. In countering such abuses, some argue thatthe Treasury now risks undermining altogether the UK'sattractiveness as a co-production partner.

'It's devastating [for co-production] in terms of the tax breakonly being available for UKspend,' says one source. He points out that months of work ongovernment-backed co-production committees, clarifying and solidifying the UK'sco-production treaties, has effectively been thrown out of the window. 'Ithas been a complete waste of time.'

Certain producers have also questioned the need for the Department forCulture, Media and Sport's (DCMS) proposed new 'cultural test' giventhat, under the Treasury's proposals, relief itself will only be available onqualifying UKproduction expenditure.

There is a huge range of opinions about the Treasury's document. Oneobserver called the Treasury document 'half-baked'. Others arestriking a more upbeat note. Bill Allan of Baker Street praises the'remarkable' amount of work the Government has put into thinkingthrough its proposals.

The consultation period runs until October 21st.

Below some leading financiers and producers give reactions to theproposals


The main problem I have with the proposals is that it's so hard tounderstand what the bottom-line value of them is. Why are they so complicated'Test it and ask five people what the bottom line result is for the averageBritish film. Is it 5%, 20%, 2%' I have heard everything from 20% to 2%. And Idon't really know what the bottom line is for a typical Hollywoodproduction.

In general the proposals are moving in the right direction. They'resupportive of slates and in line with what most countries give by way of taxhelp. But it has to be user-friendly.

I'm entirely not with this fear and distrust of the middleman. They havehelped make a huge number of films. If you look at the most prominent,Ingenious, they have participated in some very important films made out of Britain. Theywere doing something that was certainly legal, that was beneficial to the filmindustry. The Treasury considered it had been ripped off by the studios butisn't that the purpose of the Treasury and Inland Revenue to defend legislationand make sure they're not ripped off' It's not the business of the independentproducers in the UK.


We welcome the proposals and like to think that the tax credits will beworth the 20% originally announced. In pretty much any model that anyone hascome up with at the moment, it isn't. There are issues about the bankability of the tax credit. If the benefit is projectedat around 17%, will it be possible to give banks the necessary assurances thatwill enable them to consider it a reasonable risk' There are some seriousquestions about that. If it [the credit] is not considered anacceptable risk for banks, who will step in to cash-flow it' It may bethe so-called 'middlemen'. That's obviously interesting because theGovernment does not seem to be keen on these people. I am sure the Treasury isconcerned that the credit should be bankable, but banks operate under verystrict rules.

I think the cultural test isredundant. If the relief is based on UK spend, Idon't see any point in the cultural test. But if the test is to be retained, itis very important that every box that needs to be ticked is objective, notsubjective.


It's obvious that the proposals work better for slates of films than forindividual films. You can still use it for a single film model - it cuts outthe middleman, it cuts out the waste, and it seems to be worth 17%. There is obviously going to be ahole in everybody's finance plans compared to where we were a year ago, butthat was sadly inevitable. The good thing about these proposals is that they'regenuinely a tax credit we can use. It's shifting everybody's focus towardslate-based financing. The dangers are who will be those companies runningslates' If this becomes a way for a major financial institution to insist thatfinancing only runs through them with them taking the benefits,that is not going to help producers build their businesses. It's up toproducers to find a way to put themselves in thedriving seat.

There is one big hole. Culturalco-productions of the kind like No Man's Land, Oscar-winning, really importantfilms, fall out There is no money for them at all. That is something that theFilm Council needs to be providing a separate fund for that would have agatekeeper. No Man's Land was a five country only financial-only co-productionthat couldn't have been made without the UK andprobably wouldn't have been as well distributed without UK involvement.That couldn't be done today.


One has to take a step back. The new proposals represent quite a shift,in particular with the introduction of the cultural test. Previously, thequalification of British films has been a function of the financing of thefilm. The new DCMS proposals bring in a cultural dimension and that is a bigchange. It's a good thing to encourage the promotion of indigenous Britishfilm. What's remarkable is the amount of work the Government has put into thinkingthis through. They set out very clearly the Government's agenda and what it istrying to achieve. There are a lot of checks and balances. What the effect willbe is hard to say. In simple terms, it's good news for British producers, but Ican't really speak for inward investment. In recent years, the UK has beena co-production hub. The implications of the proposals for co-production needclarification. That is an area of concern.

The anti-middleman rhetoric has been very unfortunate. People involvedin film finance are doing a valuable job. What I regret is that the proposalsdon't include the role of the private investor in the British film industry.That's a missing bit. But this is a consultation. We'll have to see what thefinal results are.


There has been this witch-hunt against the middleman but the reality isthat people will need to cash flow the tax credit. The tax credit won't ofcourse go to the producer. I suspect that the banks will eventually do it, butthere will be an element of discounting. A lot of money has come into theindustry because of sale and leaseback. People complain about it but mostproducers understood how it worked.

Private investors accept that sale and leaseback will come to an end.They're not bothered by it. The vast majority who invested in these schemes didso purely for tax reasons.

Over the last year or so, the quality of British films has improved.There are investors out there who are still keen to invest in the rightproject. Hopefully that will continue. The one lasting benefit of sale andleaseback is that it did encourage some people to back the British filmbusiness.

There will probably be a mad scramble into production before the end ofthe tax year. There may be a hiatus while people wait to see how the new systemworks, but I don't expect it to be over-complicated. If anything, the Britishfilm industry has shown itself to be incredibly adaptable the last few years.It always seems to bounce back.

Screen International's UK Film Finance Summit takes place on October 18.