IP/06/1611

Brussels, 22nd November 2006

State aid: Commission approves revised UK film tax incentive scheme

The European Commission has approved the United Kingdom’s film tax incentive scheme on the basis of EC Treaty state aid rules. The scheme aims to use tax-based incentives to encourage filmmakers to produce cultural British films. The scheme has been approved until 31 March 2012 on the basis of the revised UK Cultural Test. The Commission’s assessment of the scheme was based on the criteria outlined in its 2001 Communication on cinema and audiovisual production. The UK authorities have undertaken to modify the film tax incentive scheme, if necessary, in accordance with any changes to the state aid rules in the audiovisual sector.

Competition Commissioner Neelie Kroes commented: “The Commission is satisfied that the revised UK film tax incentive scheme complies with the conditions set out in its Audiovisual Communication. As with other film support schemes which meet these conditions, we have been able to apply the cultural derogation to the general ban on State aid in the Treaty. We welcome the guidance published by the UK authorities which confirms that European co-productions can benefit from the scheme.”

The total annual budget for the UK film tax incentive amounts to £120 million (€ 177 million). To be eligible for support under the scheme, films other than European co-productions will have to pass the revised UK Cultural Test. To pass this points-based test, a film must obtain at least 16 of the available maximum of 31 points for different criteria. There are four categories of criteria, including Cultural Content and Cultural Contribution for which up to 20 points are available, ensuring that the aid is directed towards a cultural product. The UK authorities will bring forward legislation to apply the revised Cultural Test and make the scheme operational.

The aid takes the form of an ‘enhanced tax deduction’ and a ‘payable film tax credit’. The ‘enhanced tax deduction’ allows a film production company to benefit from a higher deduction for certain production costs than the normal UK tax rules would allow. The ‘payable film tax credit’ allows the film production company to receive a cash payment of up to 25% of any tax loss (after applying the enhanced tax deduction). The pre-production, principal photography and post-production expenditure borne by the beneficiary on goods or services that are used or consumed in the UK can be considered under this aid scheme.

The Commission approved this scheme based on the criteria to assess aid to assist film and television production laid down in the 2001 Audiovisual Communication (see IP/01/1326).However, as this Communication is currently due to expire on 30 June 2007, the UK authorities have committed to make any changes required by any new EU rules.

As with other European film support schemes, the UK film tax incentive scheme includes territorial conditions. Territorial conditions are those which require that a proportion of the film production expenditure is incurred in the territory providing the aid. Territorial conditions are allowed under the criteria laid down in the Audiovisual Communication, provided that they do not exceed 80% of the film production budget. In preparation for its review of the Audiovisual Communication, the Commission has launched a study to examine the economic and cultural effects of such territorial conditions. The results of the study should be available in late 2007.

Background

The Commission's policy towards state aid for film and audiovisual works is governed by its 2001 Communication on cinema and audiovisual production in Europe, which sets out the criteria under which the cultural derogation in Article 87.3(d) of the EC Treaty can be applied to such schemes (see IP/01/1326). In 2004, this Communication was extended until 30 June 2007 (see IP/04/343).