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Session 2005 - 06 Publications on the internet Standing Committee Debates Finance (No. 2) Bill |
Finance (No. 2) Bill |
The Committee consisted of the following Members:Frank Cranmer, Emily
Commander, Committee Clerks †
attended the Committee Standing Committee AThursday 18 May 2006(Morning)[Mr. Joe Benton in the Chair]Finance (No. 2) Bill(Except
clauses 13 to 15, 26, 61, 91 and 106, schedule 14, and new clauses
relating to the effect of provisions of the Bill on section 18 of the
Inheritance Tax Act
1984)
Clause 32Meaning
of “film production
company” Amendment
proposed [18 May]: No. 47, in page 29, line 14 [Vol I], at the end
insert the words ‘; but
notwithstanding the provisions of this section, a company is only a
"film production company" if it meets the conditionsfor film
tax relief as set out in section 38 of this
Act.’.—[Mrs.
Villiers.] 9.5
am Question
again proposed, That the amendmentbe
made.
The
Chairman: I remind the Committee that with this we are
discussing the following: Amendment No. 64, in page 29, line 17 [Vol
I], leave out lines 17 to 20 and
insert— ‘(a)
undertakes (whether on its own account or whether it is responsible to
a third party)— (i)
principal photography and post production of the film,
and (ii) delivery of the
completed
film,'. Amendment No.
31, in page 29, line 18 [Vol I], leave out
‘pre-production'. Amendment
No. 65, in page 29, line 22 [Vol I], leave out
‘pre-production,'. Amendment
No. 32, in page 29 [Vol I], leave out lines 24 and
25. Amendment No. 33,
in page 29, line 26 [Vol I], at end
insert— ‘(3A) The Treasury
may, by regulations— (a)
amend subsection (3); and (b)
provide that specified activities are or are not to be regarded for the
purposes of this Chapter as film making
activities; and in this
subsection “specified” means specified in the
regulations.'. Amendment
No. 46, in page 29, line 27 [Vol I], after ‘company',
insert ‘resident in the United
Kingdom (and not resident in another place in accordance with the law
of that place relating to
taxation)'. Amendment
No. 34, in clause 34, page 30, line 19 [Vol I], after ‘on',
insert
‘development,'. Government
amendment No.
26 Amendment No. 35,
in clause 35, page 30, line 37 [Vol I], at end insert—
‘But for the purposes of this
subsection— (a) services
provided in relation to rented equipment shall be considered to have
been performed in the United Kingdom where the equipment is used in the
United Kingdom; and (b) where
goods are initially supplied in the United Kingdom, their subsequent
transport and use outside the United Kingdom shall not prevent the
relevant expenditure from being treated as UK
expenditure.'.
The
Economic Secretary to the Treasury (Ed Balls): We have
made progress—although not very much, I see from the amendment
paper—and our debate has been useful and wide-ranging. When we
adjourned, I had addressed amendment No. 31 and was part way through
addressing amendment No. 32. As I had explained to the Committee, I was
taking the amendments in a slightly different order, so as to make my
speech appear logical, as far as was
possible. I should
like to make a couple of comments, following on from our wide-ranging
debate. We had such a long debate on the nature and definition of a
film production company and issues around that, because that goes to
the heart of the issues explaining the decision to move away from the
old tax treatment of films to the new tax treatment set out in the
clauses. The majority
of the debate on Tuesday was about the definition of a film production
company. Some Opposition Members, including the hon. Member for
Chipping Barnet (Mrs. Villiers), felt that the criteria that we were
setting out in the definition of “film production
company” were both too broad and too tight, and would exclude
some genuine film production companies that might not cover all aspects
of all three stages of the processes defined in clause 32.
As I explained on Tuesday, the
definitions in the clause are designed to ensure that the
Government’s relief is properly targeted on genuine
film-makers—those who really make films—so the definition
requires the company to be responsible for all phases of film
production, not just some. However, as I explained on Tuesday, it does
not require the company to be directly responsible for all parts of all
phases; nor does it prevent the company from sub-contracting some of
the work to others.
We fully recognise that the
stages to which the legislation refers—development,
pre-production, principal photography and post-production—are,
in practice, not sequential, and that there will be overlap between
them; and we accept that a company may take over some pre-production
work for which it will not have been fully, directly responsible. We
also fully understand from our discussions with the industry that the
film production company achieves much of what it wants through others,
and that sub-contracting is absolutely standard practice. However, to
qualify for the tax relief, the film production company needs to be the
film-maker—the person who has the vision for the film and who is
charged with taking that vision through to delivery. That is why they
must be in control of each of the three stages.
During Tuesday’s
debate, worries were expressed about the requirements being too tight.
Now that I have explained that there is no expectation that the company
will do all the work itself, or be responsible for all of every stage,
I hope that the hon. Lady will be
more comfortable with the clause. There was also concern that by using
standard industry terms, such as development, pre-production and so on,
without explicitly defining them, we are laying ourselves open to being
misled and to allowing the new relief to be abused in the same way as
what it replaces. However, as I explained on Tuesday, it must be right
to use terms that the industry uses and understands, in order to ensure
that it can operate the relief in reality. So if, for instance,
developments in the industry mean that new things need to be done
during pre-production, they are automatically
included. The hon.
Member for Braintree (Mr. Newmark), who is not currently with us but
who was certainly here on Tuesday, asked a good question about how we
intend to prevent the deliberate manipulation of the divide between
development and pre-production. He feared that a less scrupulous
film-maker might disguise what were clearly development costs as
pre-production costs. Although Treasury Ministers are responsible for
the making of tax policy, the administration of the system is the
responsibility of Her Majesty’s Revenue and Customs. It will be
responsible for ensuring compliance with the new tax rules, and for the
proper interpretation of “core expenditure”, just as it
ensures compliance with the rest of the tax system. As we shall discuss
later, if all else fails, the remedy lies in paragraph 3 of schedule 5,
which gives the Treasury the power to specify what is included or
excluded in respect of expenditure qualifying for the enhancement. Any
attempt to disguise expenditure as something that it was not would
allow film production companies to claim tax relief to which they were
not entitled. The power in the paragraph deals with that
issue. On Tuesday,
Committee members suggested that the rule that a company working in
partnership cannot be a film production company would in practice
exclude all co-productions, as they are by definition companies in
partnership. That is absolutely not the case. From our extensive
discussions with the film industry, we know that although it is
standard practice for film makers to work collaboratively with others
on international co-productions, they are not “in
partnership” in the sense intended by clause 32(2). Separate
film production companies are set up in every co-producing country,
each being responsible for delivering its own contribution to the film
as a whole, and each company can claim whatever tax relief is available
from its respective Government.
Far from excluding companies
that make films in that way, clause 32(4) makes special provision to
ensure that co-productions can access the new tax relief in the same
way as others. The rules in subsections (2) and (3) are designed to
exclude partnerships of companies in which one partner’s only
contribution to the film is to provide finance. Such an exclusion is
essential to ensure that profitable companies not otherwise engaged in
the film business are not able to badge themselves as full making
partners and open the door to precisely the kind of abuses and
avoidance to which the film tax relief regime has been subject in the
past, and which the reforms and clauses are designed to
prevent. Rob
Marris (Wolverhampton, South-West) (Lab): Will my hon.
Friend clarify whether he is talking about “partnership”
in its everyday sense, using standard
industry terms, or whether in the Bill the word is intended to be used
in a legal sense, such as that used in the Partnership Act 1896 or
whatever?
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