Ed
Balls: I am grateful to the hon. Gentleman for clarifying
the situation. Even though my hon. Friend the Member for Wolverhampton,
South-West is not a PPS, I find his presence behind me reassuring. I am
sure that the fact that he will continue to hold the Government
properly to account from the Back Benches on the detailed issues is
reassuring not just to me but to the taxpayer at large.
Amendment
No. 44 seeks to make it explicit that the expenditure incurred by a
third party, which is reimbursed by a film production company, should
be treated as if it had been incurred by the film production company
for the purpose of determining whether the film production company
meets the 25 per cent. minimum UK expenditure test. It is common in the
film industry for legitimate production costs to be recharged to a
third party rather than charged directly to the film maker. That is
almost universal in the United States, where the Screen Actors
Guild—the Hollywood actors’ trade union—has rules
to limit the number of companies to which an actor can charge fees for
his or her services. That is likely to be the film production
company’s parent company, rather than the film production
company itself. I imagine that that is the sort of situation
that the amendment seeks to address.
It is accepted accounting
practice for costs that are recharged in that way to be treated as
though they were incurred directly by the company, and there is nothing
in the legislation to indicate that that practice will not continue for
the purposes of the new film tax relief. Where costs are recharged to a
film production company through a third party, they can be treated as
qualifying production expenditure of the film production company as if
they were incurred directly by the film production company, provided
that they are recharged on a commercial basis and are not designed to
inflate the amount of film tax relief that can be claimed. That has
already been made clear by Her Majesty’s Revenue and Customs in
guidance, which I fear might not yet have been read by members of the
Committee, with the possible exception of my hon. Friend the Member for
Wolverhampton, South-West. It has been published since 11 April on the
website—www.hmrc.gov.uk\films\faqs\htm—which
says: “Q: Can
costs charged through third parties be included in production costs? A:
The recharging of costs to a subsidiary by its parent company is
standard practice in the film industry and elsewhere. Where such costs
relate to qualifying production expenditure, they can be included for
the purposes of film tax relief, provided they are recharged on a
commercial basis and are not designed to inflate the amount of film tax
relief that can be
claimed.” Obviously,
such costs will be taken into account when determining whether the
clause 41 expenditure test is met. Given that that guidance is already
on the website, the amendment raises a moot point, so I suggest that it
be withdrawn.
Mrs.
Villiers: I very much agree with the policy objective of
the Government to ensure that television production is not subsidised
by the film tax break. That has led in the past to problems with the
tax break being used in an inappropriate way, and I would not seek to
reverse it. What concerns me, which is why I tabled the amendment, is
the problem adverted to by the Economic Secretary in relation to the
point at which the decision that a film is to be made for theatrical
release is made. The original text of the Bill would have provided that
that had to happen at a preliminary stage, as soon as film-making
activities began. Clause 33 states that those film activities include
development and so, to use the example given by the Economic Secretary
on Tuesday, the writing of a book that is to become a blockbuster
trilogy of films 40 years later could conceivably be considered to be
development.
It would make no sense
whatsoever to determine the tax status of a film at the start of the
development stage. I welcome the Government’s amendment and I am
happy not to press mine because theirs does an adequate job in meeting
the problem outlined by me and the Economic Secretary.
On amendment No. 44, I welcome
the clear indication given by the Economic Secretary that costs
incurred by a third party and recharged to the production company will
count as expenditure under clause 41. There is therefore no need for me
to press the amendment.
2
pm Julia
Goldsworthy (Falmouth and Camborne) (LD): There is no need
to dwell any further on the amendments tabled by the hon. Member for
Chipping Barnet, since she has made it clear that she will not press
them. We will not call for them to be pressed either.
I also
welcome the Government amendment to clause 39(3). It seems that the
subsection as it stood would have created a series of perverse
incentives and would have been an incentive for people to misrepresent
the intentions of their film-making activities.
I will not keep the Committee
too long, but I wanted to draw its attention to the word
“significant” in subsection (2)(b), because the
subsection states
that “a film is not
regarded as intended for theatrical release unless it is intended that
a significant proportion of the earnings from the film should be
obtained by such
exhibition.” I would
appreciate some clarification of how that can be demonstrated. It is
obviously not always easy to predict the proportion of earnings that a
film will generate from theatrical release compared with DVD or video
release. If the Minister could clarify what the word
“significant” represents, I would be
grateful.
Ed
Balls: It is a pleasure to be able to give an answer to
the hon. Lady. Films do not just happen by accident but are carefully
planned, so we would hope that the intended outlet for the film would
be clear from an early stage. That will be reflected by who commissions
the film, its intended outlet, how it is made and the distribution
agents that are put in place.
The Revenue will look
carefully at the plans in each individual case, to see not only the
intended degree of revenue but how the film will be introduced to the
distributional channels. Different indicators can be
brought together to allow the judgment to be made, so to set a number on
the word “significant” and to make that the only test
would be too narrow a view. It is much better to say, as the
legislation does, that the proportion needs to be significant and that
it needs to be clearly and demonstrably the case that the film is
intended for the cinema. That should be a judgment made in the round
based on a number of factors. Amendment agreed
to. Clause 39,
as amended, ordered to stand part of the
Bill.
Clause
40Conditions
of relief: British
Film Question
proposed, That the clause stand part of the
Bill.
Mrs.
Villiers: Clause 40 focuses on the requirement that
a film be culturally British. I can see the merits of focusing film tax
relief on culturally British films and of the indirect benefits of the
promotion of UK plc around the world by the film industry. Those
benefits would be more direct and stronger with films of particular
cultural
Britishness. I shall
flag up one concern, however: there could be room for debate on what is
sufficiently British. For example, would “The Chronicles of
Narnia” have been sufficiently British? Will the “Red
Dwarf” movie—currently in production—be
sufficiently British? There is a lot of involvement in that film by the
British film production industry. Would that pass the
test? The
points-scoring system, whereby it is possible to take diverse factors
into account such as a film’s cultural content and setting, the
nationality of its characters and its use of UK cultural hubs, seems to
be broadly workable. I welcome the fact that the test makes provision
for a UK cultural hub for visual and special effects because those are
some of the strongest aspects of the UK film industry; our visual and
special effects industry is one of the most successful in the world.
Encouraging film makers to use those facilities is
desirable. My
principal concern is the same as that which I raised during
deliberation on another part of the Bill: is the EU state aid regime
the principal concern motivating clause 40? Or did the Government form
the view that we need a test of
Britishness?
Ed
Balls: As the clause makes clear, and as I think that we
discussed on Tuesday, in order to be eligible for film tax relief, a
film is required to be British and to be certified as such by the
Secretary of State for Culture, Media and Sport under schedule 1 to the
Films Act 1985. That was the previous requirement for film tax reliefs.
However, my right hon. Friend has developed and introduced a new film
tax regime designed to be simpler to operate and more geared towards a
film’s British cultural
status. I had the
pleasure to serve on the Committee that debated the details of that
cultural test. Certainly, the conditions set out are extensive, but it
will not surprise the Committee that that is the responsibility of my
right hon. Friend, not the Treasury. Obviously, it would
be inappropriate for a Treasury Minister to comment on any matters
outside the direct purview of the Treasury, so that is really a matter
for my right hon. Friend’s
Department. On
European Commission state aids, we discussed the procedure for state
aids clearance during consideration of the clauses on tax reform. The
state aids rules require that support be directed towards films that
are cultural products, which is why the Department for Culture, Media
and Sport has been in dialogue with the Commission over compatibility
with the state aids rules and its responsibilities. That Department,
like the Treasury, has notified the Commission of the test, but that is
for it to pursue. I
can reassure the hon. Member for Chipping Barnet that this is not being
done because of a requirement from the Commission, but because we want
a test of Britishness that will allow us to say with hand on heart that
we are supporting the production of British
films. Question
put and agreed
to. Clause 40
ordered to stand part of the
Bill. Clauses
41 and 42 ordered to stand part of the
Bill.
Schedule
5Film
tax relief: further
provisions
Mrs.
Villiers: I beg to move amendment No. 54, in page 170,
line 5 [Vol I], after ‘pay'
insert ‘within 90 days of the claim
being made, subject to sub-paragraphs (3) and (4)
below,'. Amendment
No. 54 would insert an obligation on the Treasury to pay the film tax
credit within 90 days of the claim, for the following reason.
Considerable concern has been expressed about the timing of the
Revenue’s payment of tax credits. As we are all aware, payments
of tax credits have been subject to severe administrative
problems.
The
Paymaster General (Dawn Primarolo): If the hon. Lady
considers the operation of the research and development tax credit, on
which the film tax credit is modelled, she will find no such delay or
problems. Perhaps she would like to make a direct comparison instead of
hitting away into areas that are not connected to the
issue.
Mrs.
Villiers: I appreciate the right hon. Lady’s
comments. The reason why I referred to tax credits is that many of my
constituents have extreme difficulties with the working families tax
credit system, which has had problems. I acknowledge that the example
that we are talking about is different from the tax credit systems
whose problems have been most serious, but it is reasonable to refer to
problems in other areas with a view to ensuring that such problems do
not
recur.
Dawn
Primarolo: If we are to have a serious debate, will the
hon. Lady draw the parallels between a payable tax credit to families,
which is based on integration of the tax and benefit systems, and
payable tax credits for research and development in the tax system, on
which the film tax credit is modelled? Their names are the only
similarity.
Mrs.
Villiers: I acknowledge that the two systems are
different. I am saying only that we do not want the problems that have
arisen in one area to arise in
another. Uncertainty
about the time scale for the payment of film tax credits will drive up
the cost of funding a film because of the increased risk involved in
delays. I hope that the Government will consider accepting amendment
No. 54 to inject a welcome degree of certainty into the measures. It
would also be useful if the Economic Secretary indicated how long the
Government expect that it will take, on average, to pay out a tax
credit. Are they doing any research on the
matter? Rob
Marris (Wolverhampton, South-West) (Lab): The hon. Lady
would like the payments to be made within 90 days of a claim. Would
that not be unworkable, as the time would run from when a claim was
made and not from when a valid claim was made, fully supported by
appropriate documentation and
evidence?
Mrs.
Villiers: That is the point of the amendment—to
ensure a clear timetable for getting the claim sorted out and
paid.
Mr.
Philip Dunne (Ludlow) (Con): To help my hon. Friend, I
shall illustrate the point. For an example of a Government agency that
seems incapable of providing payments for validated claims, we need
look only to the Rural Payments Agency, which was debated today on the
Floor of the House. It illustrates the extent of the problem and the
reason why so many sectors of the economy are concerned about
exceptionally complex Government innovation introducing a new relief,
subsidy or tax credit that the relevant Government agency will be
incapable of delivering according to its own schedule and statutory
procedures. That is why the amendment is seeking to direct confidence
back into the system. That is its
purpose.
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