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.

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66 Section 481 Film Corporation Tax Credit