Ireland seems to be the latest country to use tax shelter – Section 35, to create a busy local film industry. Certainly the scheme has created an unprecedented boom in local production.

Predictably, it is straining resources and driving up prices of crews and services.

Are these familiar sounds to Canadian ears?

The rise in production has certainly attracted plenty of money to the Emerald Isle. Mel Gibson’s Braveheart alone spent around us$25 million in Ireland, of which ir£10 million was raised in Ireland.

The most recent u.s. film to raise money using Section 35 finance is Warner Bros.’ $17-million biography of Irish revolutionary Michael Collins, which will be directed by Neil Jordan and stars Liam Neeson and Julia Roberts.

This feature also raided the maximum amount of ir£10 million from 10 local corporate investors.

Other productions planned are The Van, the third part of the Roddy Doyle trilogy to be directed by Stephen Frears; the us$15 million Moll Flanders; tv miniseries Kidnapped, based on the Robert Louis Stevenson novel, and Space Trackers starring Dennis Hopper; Ivanhoe, directed by Brian Grant; and Hay Fever, starring Joanna Lumley.

However, the high cost of living in Ireland and the relative shortage of crews may give pause to producers considering shooting there.

No one can deny that Section 35 has been beneficial to the Irish film industry. It is estimated that from an average of one or two shoots per year, Ireland went to at least 18 productions in 1994 and expects close to 30 in 1995.

Numbers from the Department of Arts, Culture and the Gaeltacht show that in the 20 months after the revamping of Section 35, in 1993, us$144 million of Section 35 money was invested in the Irish industry, compared with a puny $18 million in the six years before.

Why, suddenly, the to-do in Ireland?

The activity has really been spurred on by an innovative tax-shelter scheme to encourage investment in production.

The tax write-off system was set up in 1987, but heavily modified in 1993 to encourage corporate finance into the Irish film industry.

The plan also allows private individuals to invest, albeit in a small way (ir£25,000 a year.)

Options

Essentially, the system allows private companies or groups to invest either us$560,000 per year over three years in qualifying film projects or us$1.68 million in one year and in one project.

The investment is 100% tax deductible, but Section 35 money cannot make up more than 60% of a budget. The Section 35 scheme is up for renewal in April 1996. It is expected to be continued but with significant changes.

A ‘qualifying film’ is one in which 75% is produced in Ireland.

The investors are supposed to be ‘at risk’ for the investment.

However, inevitably, risks have been reduced for Section 35 investments in films made by major u.s. studios that are trying to raise production financing in Ireland.

In reality, there is virtually no risk to an investment in a big budget American feature, which is being financed by a major studio and distributed by its international subsidiaries.

Risks considered acceptable by the Ireland Revenue include the fact that the feature may not be completed or that once completed it will not be accepted by the distributor.

The legislation provides that the investment must be made on a commercial basis, and, therefore, in addition to the lump-sum repayment after one or three years, the investor must be entitled to an equity participation in the profits of the film.

However, in practice, this participation need not be likely to generate significant additional profits. The benefit to the producer is an immediate infusion of equity, which is, later on (usually after three years), shared with investors.

Overall, the shelter scheme has been considered a qualified success in helping to create a local industry, attract future infrastructure investment and boost spending in the local economies.

The Irish model may well be copied elsewhere in Europe, especially in England.

malcolm silver heads Malcolm Silver & Co. which finances the production and marketing of film, television, video and multimedia.