InvestmentsMar 13 2014

HMRC clarifies film and TV EIS rules

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HM Revenue & Customs has clarified how television and film co-productions can access enterprise investment scheme (EIS) benefits.

In the case of co-productions, HMRC stated each party to the production is responsible for creating a certain part with usually the majority producer responsible for collating these parts into a finished film or programme, the finance necessary to produce the individual parts being raised by each party.

HMRC stated the intellectual property created in relation to the film or programme is jointly owned by the parties and income from the film or programme shared between them.

According to HMRC it is a common feature that the parties will divide this income in the same ratio as their input into the production, though there may be some exclusive territorial rights for each party.

One of the parties will possibly receive in excess of 50 per cent of such fees, though in the case of a co-production involving more than two parties, HMRC acknowledged this may not be the case.

The proposition has been put forward, and HMRC admitted that it had previously accepted that if a majority producer, i.e. one creating in excess of 50 per cent of the production, receives royalties or licence fees then under section 195 of Income Tax Act 2007 it is not conducting an excluded activity and thus eligible to be considered a qualifying company for EIS purposes.

However the view of HMRC is that consideration must first be given to the provisions of section 183 of the same act, requiring that no part of the qualifying trade is carried on by a person other than the company or a qualifying 90 per cent subsidiary.

In the case of a film or television programme there is a single product that is produced and that film or programme in a co-production has been produced by the activities of more than one party.

According to HMRC the consequence is that the trade of a potentially EIS qualifying company is being conducted by another person and so this company will fail the test of section 183.

The above will apply whether the production is a qualifying co-production as defined by section 1186 and section 1216AI Corporation Tax Act 2009 (an official co-production) or an unofficial co-production.

According to HMRC none of the above will affect the entitlement to film or television tax relief of qualifying co-productions.

To learn more about EIS and earn CPD minutes click here to read FTAdviser’s Guide to EIS.