Montreal: This month’s U.K. budgetary provisions will have a highly adverse and immediate impact on Canadian coproduction. The new rules wipe out state-backed financing for TV production.

In effect as of April 17, the U.K. budget states only ‘films intended for theatrical release at the commercial cinema’ qualify as British films for purposes of sale and leaseback transactions with the resulting tax break. TV series and MOWs no longer qualify.

In an April 17 missive to its members, CFTPA says, ‘Perhaps more crippling, television projects completed before Jan. 1, 2002 but which haven’t been certified as ‘British qualifying’ as of April 17 will be denied tax benefits, leaving hundreds of [international] film and television productions in limbo. Transitional relief will only be available to those productions completed prior to April 17, 2002.’

According to Johanne St-Arnauld, director, international relations, Telefilm Canada, the U.K.’s coproduction certification authority, the Department of Culture Media and Sports, will be quite open to grandfathering projects. ‘And what we heard this morning [April 23], and of course it is not official, is that all the [provisional] applications made [in the U.K.] before April 17 will be eligible for tax relief.’

Telefilm and the DCMS have exchanged lists of current TV coproduction applications.

Michael Prupas, president, Muse Entertainment, says the Blair government-initiated tax write-off scheme represented a production financing market worth several billion pounds in 2001, a significant loss for a government that has just raised taxes and is in dire need of revenues.

Stephen Selznick, partner, Cassels Brock & Blackwell LLP says, ‘This program has been cut not because it has been successful, but in reality because it has been too successful and too successful probably in the wrong sub-genre of film. It was intended to help spur the feature film development pool in the U.K..’

Ken Faier, VP AAC Kids, says Alliance Atlantis has already started to explore financing alternatives. ‘We knew sale and leaseback changes were coming, but we didn’t think it would be this swift or all encompassing in terms of TV. This will definitely have an impact on the [kids] business.’

‘This is a devastating move and completely unexpected,’ says Steven DeNure, partner, Decode Entertainment.

At present, there are 39 Canada/U.K. TV coproductions that have filed (in both 2001 and 2002) for advanced ruling decisions. These productions represent cumulative budgets of $500 million. In a worst-case scenario, the impact of the loss of the sale and leaseback benefit – worth on average 9% of the total production budget – could represent a financing shortfall of $49 million.

What is not known at this point is how many of the identified coproductions have provisional certification status in the U.K., where the filing period is normally later (at the delivery stage) than in Canada.

The CFTPA has alerted both Jeremy Kinsman, Canada’s high commissioner in London, and Sir Robert Burns, the U.K.’s high commissioner in Ottawa. CFTPA EVP Guy Mayson flew to London mid-month to discuss strategies for extending the transitional relief period with PACT (U.K. producers association) CEO John McVay.

Kinsman told the CFTPA the commission has offered PACT its full support.

‘It is highly likely there are significant coproductions with Canadian involvement that are now in some kind of no-man’s land until DCMS comes up with definitive transitional rulings,’ says Selznick.

One of the more insidious considerations, says Selznick, is that if one of the coproduction partners cannot meet their financial commitments, typically 20% of the budget for the minority partner, then the production can no longer be defined as a coproduction. ‘This jeopardizes the Canadian side as well because the Canadian [producer] only gets the benefits if it is an official coproduction.’

Selznick says the new U.K. budgetary measures leave many unanswered questions, including the admissibility of a U.K. producer application which only has provisional approval but no formal certification. Nor is there a clear understanding of the meaning of the budgetary qualification ‘films intended for theatrical release at the commercial cinema.’