section 481 film corporation tax credit...via voluntary strike-off or members’ voluntary...
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Section 481 Film Corporation Tax Credit
John Gleeson Partner, Grant Thornton
Roisin Henehan Director, Grant Thornton
IntroductionOn 12 January 2015, changes to s481 TCA 1997 came into effect
that ended income tax relief for individuals or corporates who
invested in a “qualifying film”. The relief was replaced by a
payable film corporation tax credit to a qualifying “producer
company”. The new legislation has introduced tax-compliance
requirements for any company and its benefi cial owners looking
to avail of the incentive. The Reven ue Commissioners have issued
guidelines on the new legislation in “Guidance Note for ‘Section
481’ Investment in Film” (“the Guidance Note”), dated July 2015,
and they have also published new Regulations – Film Regulations
2015, S.I. 4 of 2015 (“the Regulations”). Despite the change from
an income tax relief to a corporation tax credit, the section under
which the relief is provided remains the same.
How Does s481 Film Corporation Tax Credit Work?The incentive is administered as a payable corporation tax credit
to a qualifying “producer company” (PC) in respect of Irish eligible
expenditure incurred by an Irish subsidiary special-purpose
2015 Number 3 Section 481 Film Corporation Tax Credit 63
vehicle (SPV), defi ned in s481 as the “qualifying company” (QC).
To obtain the tax credit, the PC must make an application to
the Revenue Commissioners for certifi cation of the project as a
“qualifying fi lm”.
A “qualifying fi lm” under s481 is a fi lm produced on a commercial
basis with a view to the realisation of profit and produced
for exhibition to the public by means of theatrical release or
broadcast. The categories of qualifying fi lm are:
› feature films,
› television dramas,
› animation (whether computer-generated or other) and
› creative documentaries, subject to certain criteria.
The Department of Arts, Heritage and the Gaeltacht determines
whether the project meets the cultural test criteria. The Revenue
Commissioners will liaise with the Department to obtain authori-
sation based on an application submitted by the qualifying PC
outlining its compliance with the cultural test criteria as set out
in the Guidance Note.
On receipt of a certifi cate, the tax agent of the PC can amend
the corporation tax return for the “qualifying period” to obtain
the tax credit based on the eligible expenditure amount noted
in the certifi cate. It is effectively treated as an overpayment of
corporation tax. The value of the tax credit is 32% of the lowest of:
› 80% of the total cost of production,
› the eligible expenditure amount and
› €50,000,000.
The “qualifying period” is defi ned as the company’s accounting
period for which the tax-fi ling deadline immediately precedes
the date on which the application was made. However, where
the accounting period identifi ed by reference to the tax-fi ling
deadline is less than 12 months, the qualifying period is the period
commencing on the fi rst day of the most recent accounting period
that commences more than 12 months before the end date of that
period and ending on the end date of that accounting period. For
example a company which has a twelve month accounting period
ending on 30 June 2014 and a six month accounting period ending
on 31 December 2014. An application for a fi lm tax certifi cate is
made on 30 November 2015. The immediately preceding fi ling
deadline is 23 September 2015 which relates to the 6 month
period ended 31 December 2014. The date which is twelve months
before that date is 31 December 2013. The most recent accounting
period commencement date before that date is 1 July 2013 and
so the qualifying period commences on that date. The last day
of the qualifying period is 31 December 2014. Consequently, the
qualifying period is the 18 month period ending on 31 December
2014 i.e., 1 July 2013 to 31 December 2014. The relief is available
in the form of a tax credit against the PC’s corporation tax liability;
therefore, it is available only against accounting periods that have
been completed. The qualifying period determines the period
in which the tax credit is available. Effectively, this means that
a film production company must trade for a minimum period
of 21 months before making an application to the Revenue
Commissioners. This has an impact on the lead-in time for any
start-up production companies looking to avail of the incentive or
any inward-investment companies looking to set up a production
company in Ireland.
The tax credit can be claimed by instalment, subject to certain
conditions, or at the end of the production on submission of
a compliance report and related attachments as set out in the
Regulations.
Qualifying Producer CompanyThe concept of a qualifying PC introduced in s481 is new. Under the
section, the tax credit application is made by a trading PC that has
a tax footprint. This is a relatively unusual requirement compared
to similar regimes in the rest of the world. For example, there is
no equivalent company under the UK tax credit system. In the UK,
the corporation tax credit is paid to a “fi lm production company”,
which is usually an SPV production entity (i.e. the equivalent of
a QC in Ireland).
Under s481, a PC is a company that is tax resident in Ireland (or
tax resident in the EEA and trading through a branch or agency
in Ireland) and that carries on a trade of producing fi lms. It must
be trading for the “qualifying period” before applying for the tax
credit. The company must remain tax compliant throughout its
trading history under all tax heads to be considered a qualifying
PC under the section.
There are also provisions in the defi nition of a PC that specifi cally
exclude a company from being a qualifying PC and therefore
deny access to the tax incentive to certain companies. A PC
64 Section 481 Film Corporation Tax Credit
cannot be a broadcaster as defi ned under the Broadcasting Act
2009 or connected to a broadcaster (“connected” as defi ned in
s10 TCA 1997). This excludes national broadcasters and foreign
broadcasters alike from directly availing of the incentive, as well as
companies that have a connection to a broadcaster or a company
whose business consists wholly or mainly of transmitting fi lms
on the internet.
Furthermore, the company will not be considered a qualifying PC
unless it:
› continues to trade and hold its shares in the QC for 12
months after the date of the provision of the compli-
ance report to the Revenue Commissioners,
› notifies the Revenue Commissioners in writing at key
compliance/notification dates,
› notif ies the Revenue Commissioners and seeks
approval of any financial arrangements entered into in
relation to the qualifying film with a person who is not
tax resident in an EU Member State or a country with
which Ireland has a double taxation agreement,
› enters into a production-services arrangement with the
QC and
› pays over the full amount of the tax credit received from
the Revenue Commissioners to the QC.
Qualifying CompanyA QC is a company incorporated and tax
resident in the State or, if not resident in
the State, is carrying on a trade in the State
through a branch or agency. The company
must have a principal object whereby it is
set up to produce one “qualifying film”.
Under the new Companies Act 2014, the QC
is usually set up as a Designated Activity
Company (DAC) for that reason. In practice,
a new QC is set up for each individual quali-
fying fi lm seeking certifi cation under s481.
A QC must be a wholly owned subsidiary
of the PC and must incur on the production
of the qualifying fi lm at least the eligible expenditure amount as
set out in the certifi cate. After the submission of the compliance
report to the Revenue Commissioners, it must continue in
existence for 12 months, at which point it may be wound down
via voluntary strike-off or members’ voluntary liquidation.
Key Compliance DatesThe following are the key compliance/notifi cation dates:
› within seven days of incurring eligible expenditure after
the submission of an application to the Revenue
Commissioners:
› notification of that expenditure;
› within four months of completion of the film:
› notification of completion of the film,
› submission of a compliance report and related
attachments in a form specified in the Film
Regulations and
› submission of two copies of the film on DVD or in
another format.
Importance of Tax ComplianceThroughout s481, the legislation makes reference to the
requirement for continued tax compliance of the PC, the QC and
the individuals who are directly or indirectly the benefi cial owners
of the PC.
In relation to individuals, any person who can control directly or
indirectly 15% or more of the ordinary share capital of the PC must
be fully tax compliant under all tax heads
and hold a valid tax clearance certifi cate.
The individual must supply evidence to
that effect in the application to the Revenue
Commissioners for certifi cation under s481.
The same applies to the PC and the QC.
When submitting the application, the PC
and QC must ensure that they are fully tax
compliant, as the Revenue Commissioners
can refuse to issue a certifi cate if there has
been a failure to submit a return on time, if
there are outstanding returns under any tax
head or if there is a query that has not been dealt with. Moreover,
if at any stage either the QC or the PC fails to comply with any
In relation to individuals,
any person who can control
directly or indirectly 15% or
more of the ordinary share
capital of the PC must be
fully tax compliant under all
tax heads and hold a valid
tax clearance certifi cate.
2015 Number 3 Section 481 Film Corporation Tax Credit 65
aspects of s481, the ramifi cations could be very costly. The failure
of a company to remain a tax-compliant QC or PC under the section
can result in the revocation of the certifi cate and the potential
clawback of part or all of the corporation tax credit paid.
Where a PC is not tax compliant and has a number of QCs in
existence due to a number of ongoing film projects, there is
potentially a “domino effect” on all of the QCs in that group.
Furthermore, the Revenue Commissioners have the power to
raise a corporation tax assessment on the PC or QC or an income
tax assessment on the benefi cial owners of the PC and/or the
directors of the PC and of the QC (under Schedule D, Case IV),
for any amount not authorised by s481 (i.e. a clawback). In this
way the Revenue Commissioners are effectively removing the
protection of limited liability that incorporation usually provides.
Film Withholding TaxSection 481 also included an amendment to the defi nition of an
“eligible individual”, which was previously limited to individuals
who were tax resident in the EU/EEA and performed their duties
in Ireland. The defi nition has now been extended to any individual
working in Ireland on a “qualifying fi lm”. As a result, the Revenue
Commissioners have introduced a withholding tax on “artistes”
(actors or voiceover artists) who are tax resident outside the EU/
EEA where their performance takes place in Ireland.
The provisions of the new fi lm withholding tax (FWT) came into
effect on 10 January 2015 and are governed by ss529B–M TCA
1997. It is the obligation of the QC to deduct the FWT at the
standard rate from payments to artistes and to fi le a Form FWT
45 with the Revenue Commissioners. The return must be fi led
on or before the 23rd day of the month following the month in
which the payment was made. The artiste must supply the QC
with the details to confi rm his or her tax residency. Failure by
the QC to make a return or to pay the FWT could result in the
fi rst instance in penalties and ultimately, in accordance with the
full tax-compliance requirement of the PC and the QC, in the
revocation of the certifi cate under s481 and a clawback of the tax
credit paid to the PC.
ConclusionThe consequences of tax non-compliance of the PC, the QC, the
shareholders of the PC, and the directors of the PC and the QC are
signifi cant. Irish production companies could be involved in fi lm
projects with multi-million-euro budgets that obtain signifi cant
levels of s481 fi lm corporation tax credit compared to the size
of their balance sheets. Should the Revenue Commissioners
choose to exercise the full extent of their powers under s481 if
a diffi culty arose, there is a huge risk to the parties involved, at
both a corporate and a personal level. The companies and their tax
agents should take additional care to ensure that all returns are
fi led correctly and on time under all tax heads and that all Revenue
correspondence is dealt with in a timely fashion.
The Revenue Commissioners have made amendments to the
guidelines on a number of occasions since the start of 2015, and
we expect there to be a review of s481 and possibly changes to
it in the next Budget. At the time of writing, the latest Revenue
guidelines on the section are dated July 2015.
Read more on Direct Tax Acts, Finance Act 2014
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66 Section 481 Film Corporation Tax Credit