Finance Act, 1996

Relief for investment in films.

31.—(1) Subject to subsections (2) and (3), Chapter V of Part I of the Finance Act, 1987 , is hereby amended, as respects a sum of money which is paid on or after the 23rd day of January, 1996, by the substitution for section 35 of the following section—

“35.—(1) In this section:

‘allowable investor company’ means, in relation to a qualifying company, a company which is not connected with the qualifying company;

‘authorised officer’ means an officer of the Revenue Commissioners authorised by them in writing for the purposes of this section;

‘film’ means a film which is produced—

(a) on a commercial basis with a view to the realisation of profit, and

(b) wholly or principally for exhibition to the public in cinemas or by way of television broadcasting,

but does not include a film made for exhibition as an advertising programme or as a commercial;

‘the Minister’ means the Minister for Arts, Culture and the Gaeltacht;

‘qualifying company’ means a company which—

(a) is incorporated in the State, and

(b) is resident in the State and is not resident elsewhere, and

(c) exists solely for the purposes of the production and distribution of one, and only one, qualifying film;

‘qualifying film’ means a film in respect of which the Minister has given a certificate under subsection (2) which certificate has not been revoked under that subsection;

‘qualifying individual’ means, in relation to a qualifying company, an individual who is not connected with the company;

‘qualifying period’ means—

(a) in relation to an allowable investor company, the period commencing on the 23rd day of January, 1996, and ending on the 22nd day of January, 1999, and

(b) in relation to a qualifying individual, the period commencing on the 23rd day of January, 1996, and ending on the 5th day of April, 1999;

‘relevant deduction’ means a deduction of an amount equal to 80 per cent. of a relevant investment;

‘relevant investment’ means a sum of money which is—

(a) paid in the qualifying period to a qualifying company in respect of shares in the company by an allowable investor company on its own behalf or by a qualifying individual on that individual's own behalf, and is paid by the allowable investor company or by the qualifying individual, as the case may be, directly to the qualifying company, and

(b) paid by the allowable investor company or the qualifying individual, as the case may be, for the purposes of enabling the qualifying company to produce a film in respect of which, at the time such sum of money is paid, the Minister has given notice in writing to the qualifying company that the Minister is satisfied, for the time being, that an application in writing containing such information as may be specified in guidelines referred to in subsection (2) has been made to enable the Minister to consider whether a certificate should be given to that company under that subsection, and

(c) used by the qualifying company, within two years of the receipt of that sum, for that purpose,

but does not include a sum of money paid to the qualifying company on terms which provide that it will be repaid, other than a provision for its repayment in the event of the Minister not giving a certificate under subsection (2), and a reference to the making of a relevant investment shall be construed as a reference to the payment of such a sum to a qualifying company.

(2) (a) (i) The Minister, on the making of an application by a qualifying company, may, in accordance with guidelines laid down by the Minister with the consent of the Minister for Finance, give a certificate to a qualifying company stating, in relation to a film to be produced by the company, that the film may be treated as a qualifying film for the purposes of this section.

(ii) An application under this section shall be in such form as the Minister may direct and shall contain such information as may be specified in the guidelines referred to in subparagraph (i).

(b) A certificate given by the Minister under paragraph (a) shall be subject to such conditions as the Minister may consider proper (having regard, in particular, to any contribution which the production of the film is expected to make to either or both the development of the film industry in the State and the promotion and expression of Irish culture) and specifies therein including—

(i) a condition that not less than—

(I) 75 per cent., or

(II) such lower percentage, not being less than 10 per cent., which, in accordance with guidelines laid down under paragraph (a), the Minister specifies in the certificate, of the work on the production of the film is carried out in the State,

(ii) a condition that the amount per cent. of the total cost of production of the film which may be met by relevant investments shall not exceed the amount per cent. (in the proviso to this provision referred to as ‘the specified percentage’) specified in the certificate:

Provided that—

(I) subject to paragraph (II) of this proviso, the specified percentage shall not exceed—

(A) where the total cost of production of the film does not exceed £4,000,000, 60 per cent.,

(B) where the total cost of production of the film exceeds £4,000,000 and does not exceed £5,000,000, the amount per cent. (hereafter in this paragraph referred to as ‘the allowable percentage’) where the amount of the allowable percentage is determined by the formula—

E

60 — _________

£100,000

where E is the excess of the total cost of production of the film over £4,000,000, and

(C) where the total cost of production of the film exceeds £5,000,000, 50 per cent.,

but in any case to which subparagraph (A), (B) or (C) relates, the total cost of production of the film which is met by relevant investments shall not exceed £7,500,000, and where the percentage of the work on the production of the film carried out in the State (in this proviso referred to as the ‘lower percentage’) is less than 50 per cent., paragraph (b) shall be construed as if the reference to 60 per cent., the reference to the allowable percentage and the reference to 50 per cent. were a reference to the lower percentage, and

(II) in relation to a film (otherwise than an animation film) in respect of which the principal photography commences at any time during the months of October, November, December and January, and the production of the film continues to completion without unreasonable delay from that time, the references in paragraph (I) of this proviso to—

(A) 60 per cent., shall be construed as a reference to 66 per cent.,

(B) 50 per cent., shall be construed as a reference to 55 per cent., and

(C) £7,500,000 shall be treated as a reference to £8,250,000,

and

(iii) a condition that the qualifying company shall, in respect of the qualifying film concerned, notify the Minister in writing of when the principal photography has commenced, the first animation drawings have commenced or the first model movement has commenced, as appropriate:

Provided that the Minister may amend or revoke any such condition (including a condition added by virtue of this proviso) specified in the certificate, or add to such conditions, by giving notice in writing to the qualifying company concerned of the amendment, revocation or addition, and the provisions of this section shall apply as if—

(I) a condition as so amended or added by the notice was specified in the certificate, and

(II) a condition as so revoked was not specified in the certificate.

(c) Where a company fails to comply with any of the conditions to which a certificate given to it under paragraph (a) is subject by virtue of paragraph (b)—

(i) that failure shall constitute the failure of an event to happen by reason of which relief falls to be withdrawn under subsection (11), and

(ii) the Minister may, by notice in writing served by registered post on the company, revoke the certificate.

(3) Subject to the provisions of this section, where, in an accounting period, an allowable investor company makes a relevant investment, it shall, on making a claim in that behalf, be given a relevant deduction from its total profits for the accounting period:

Provided that, where the amount of the relevant deduction to which the allowable investor company is entitled under this section in an accounting period exceeds its profits for that accounting period, an amount equal to ten-eighths of the amount of that excess shall be carried forward to the succeeding accounting period and the amount so carried forward shall be treated for the purposes of this section as if it were a relevant investment made in that succeeding accounting period.

(4) Where in any period of twelve months (in the proviso to this subsection referred to as a ‘twelve month period’) ending on an anniversary of the 22nd day of January, 1996, the amount, or the aggregate amount, of the relevant investments made, or treated as made, by an allowable investor company, or by such company and all companies (which other companies are referred to in the proviso to this subsection as ‘connected companies’) which, at any time in that period, would be regarded as connected with such company, exceeds £6,000,000, no relief shall be given under this section in respect of the amount of the excess and, where there is more than one relevant investment, the inspector or, on appeal, the Appeal Commissioners, shall make such apportionment of the relief available as shall be just and reasonable to allocate to each relevant investment a due proportion of the relief available and, where necessary, to grant to each allowable investor company concerned an amount of relief proportionate to the amount of the relevant investment or the aggregate amount of the relevant investments made by it in the period:

Provided that no relief shall be given under this section in respect of the amount or the aggregate amount of the relevant investments (in this proviso referred to as the ‘total amount’) made by an allowable investor company and its connected companies—

(a) to the extent that the amount of the relevant investment, or the total amount made in any one qualifying company, exceeds £2,000,000, and

(b) where in any twelve month period the total amount exceeds £2,000,000, to the extent that the excess comprises a relevant investment or relevant investments made in a qualifying company to enable the company to produce a film, the total cost of production of which exceeds £4,000,000.

(5) Subject to the provisions of this section, where, in any year of assessment, a qualifying individual makes a relevant investment, the individual shall, on making a claim in that behalf, be given a relevant deduction from the individual's total income for that year of assessment.

(6) A relevant deduction shall not be given under this section in respect of any relevant investment made by a qualifying individual in a qualifying company in any year of assessment unless the amount of that relevant investment, or the total amount of the relevant investments, made by the individual in the qualifying company in that year is £200 or more:

Provided that, in the case of a qualifying individual who is married and is assessed to tax for a year of assessment in accordance with the provisions of section 194 (inserted by section 18 of the Finance Act, 1980 ) of the Income Tax Act, 1967 , or of that section as applied by section 195B (inserted by section 10 of the Finance Act, 1993 ) of the Income Tax Act, 1967 , any relevant investment made by the qualifying individual's spouse in the qualifying company in that year of assessment shall be deemed to have been made by the qualifying individual.

(7) A relevant deduction shall not be given to a qualifying individual under this section for a year of assessment to the extent to which the amount of the relevant investment, or the total amount of the relevant investments (whether or not made in the same qualifying company), made, or treated as made, by the individual in that year of assessment exceeds £25,000.

(8) If, for any year of assessment, a greater relevant deduction would be given to a qualifying individual under this section but for either or both of the following reasons, that is to say—

(a) an insufficiency of total income, or

(b) the operation of subsection (7),

ten-eighths of the relevant deduction which cannot be given to the individual under this section for either or both of those reasons shall be carried forward to the next year of assessment and shall be treated for the purposes of this section as a relevant investment made by the individual in that following year:

Provided that an amount shall not be carried forward to any year of assessment after the year 1998-99.

(9) To the extent that an amount once carried forward to a year of assessment under subsection (8) (and treated as a relevant investment made by a qualifying individual in that year of assessment) gives rise to a relevant deduction which is not deducted from the qualifying individual's total income for that year of assessment, the amount shall to that extent be carried forward again to the next following year of assessment (and treated as a relevant investment made by the individual in that next following year), and so on for succeeding years of assessment:

Provided that an amount shall not be carried forward to any year of assessment after the year 1998-99.

(10) A relevant deduction under this section shall be given to a qualifying individual for any year of assessment as follows:

(a) in the first instance, in respect of an amount of relevant investment carried forward from an earlier year of assessment in accordance with the provisions of subsection (8) or (9), and, in respect of such an amount so carried forward, for an earlier year of assessment in priority to a later year of assessment, and

(b) thereafter, and only thereafter, in respect of any other amount of relevant investment in respect of which a relevant deduction is to be given in that year of assessment.

(11) (a) A claim to relief under this section may be allowed at any time after the time specified in paragraph (b) in respect of the payment of a sum to a qualifying company, which, if it is used, within two years of its being paid, by the qualifying company for the production of a qualifying film, will be a relevant investment, if all the conditions for relief are or will be satisfied, but the relief shall be withdrawn if, by reason of the happening of any subsequent event including the revocation by the Minister of a certificate under subsection (2) or the failure of an event to happen which at the time the relief was given was expected to happen, the company or the individual, as the case may be, making the claim was not entitled to the relief allowed.

(b) The time referred to in paragraph (a) is the time at which all of the following events have occurred, that is to say—

(i) the payment in respect of which relief is claimed has been made, and

(ii) in relation to the qualifying film the principal photography has commenced, the first animation drawings have commenced or the first model movement has commenced, as appropriate.

(12) A claim for relief in respect of a relevant investment in a company shall not be allowed unless it is accompanied by a certificate issued by the company in such form as the Revenue Commissioners may direct and certifying that the conditions for the relief, so far as applying to the company and the qualifying film, are or will be satisfied in relation to that investment.

(13) Before issuing a certificate for the purposes of subsection (12), a company shall furnish the authorised officer with—

(a) a statement to the effect that it satisfies or will satisfy the conditions for the relief, so far as they apply in relation to the company and a film,

(b) a copy of any notification required to be given to the Minister under subsection (2) (b) (iii),

(c) a copy of the certificate, including a copy of any notice given by the Minister amending, revoking or adding a condition to that certificate, under subsection (2) in respect of the film, and

(d) such other information as the Revenue Commissioners may reasonably require.

(14) A certificate to which subsection (12) relates shall not be issued without the authority of the authorised officer.

(15) Any statement under subsection (13) shall—

(a) contain such information as the Revenue Commissioners may reasonably require,

(b) be in such form as the Revenue Commissioners may direct, and

(c) contain a declaration that it is correct to the best of the company's knowledge and belief.

(16) Where a company has issued a certificate for the purposes of subsection (12), or furnished a statement under subsection (13), and either—

(a) the certificate or statement was made fraudulently or negligently, or

(b) the certificate was issued in contravention of subsection (14),

then—

(i) the company shall be liable to a penalty not exceeding £500 or, in the case of fraud, not exceeding £1,000, and such penalty may, without prejudice to any other method of recovery, be proceeded for and recovered summarily in the same manner as in summary proceedings for recovery of any fine or penalty under any Act relating to the excise, and

(ii) no relief shall be given under the provisions of this section and if any such relief has been given, it shall be withdrawn.

(17) For the purpose of regulations made under section 127 of the Income Tax Act, 1967 , no regard shall be had to the relief unless a claim for it has been duly made and admitted.

(18) An allowable investor company or a qualifying individual shall not be entitled to relief in respect of a relevant investment unless the relevant investment—

(a) has been made for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,

(b) has been, or will be, used in the production of a qualifying film, and

(c) is made at the risk of the allowable investor company or the qualifying individual, as the case may be, and—

(i) in a case where it is made by an allowable investor company, neither the company nor any person who would be regarded as connected with the company, or

(ii) in a case where it is made by a qualifying individual, neither the individual nor any person who would be regarded as connected with the individual,

is entitled to receive any payment, in money or money's worth, or other benefit directly or indirectly borne by, or attributable to, the qualifying company other than a payment made on an arm's length basis for goods or services supplied or a payment out of the proceeds of exploiting the film to which the allowable investor company or the qualifying individual, as the case may be, is entitled under the terms subject to which the relevant investment is made.

(19) Where any relief has been given under this section which is subsequently found not to have been due or is to be withdrawn by virtue of subsection (11) or (16), it shall be withdrawn by making an assessment to corporation tax or income tax, as the case may be, under Case IV of Schedule D for the accounting period or accounting periods, or the year of assessment or years of assessment, as the case may be, in which relief was given and, notwithstanding anything in the Tax Acts, such an assessment may be made at any time.

(20) (a) Subject to paragraph (c), where an allowable investor company is entitled to relief under this section in respect of any sum, or any part of a sum, or would be so entitled on making due claim, as a relevant deduction from its total profits for any accounting period, it shall not be entitled to any relief for that sum or any part of a sum, in computing its income or profits, or as a deduction from its income or profits, for any accounting period under any other provision of the Corporation Tax Acts or the Capital Gains Tax Acts.

(b) Subject to paragraph (c), where a qualifying individual is entitled to relief under this section in respect of any sum, or any part of a sum, or would be so entitled on making due claim, as a relevant deduction from the individual's total income for any year of assessment—

(i) the individual shall not be entitled to any relief for that sum or part in computing the individual's total income, or as a deduction from the individual's total income, for any year of assessment under any other provision of the Income Tax Acts, and

(ii) so much of that sum or part as is equal to the amount of the relevant deduction given in relation thereto shall be treated as a sum which, by reason of paragraph 4 of Schedule 1 to the Capital Gains Tax Act, 1975 , is to be excluded from the sums allowable as a deduction in the computation of gains and losses for the purposes of the Capital Gains Tax Acts.

(c) Where an allowable investor company or a qualifying individual has made a relevant investment by way of a subscription for new ordinary shares of a qualifying company and none of those shares are disposed of by the allowable investor company or the qualifying individual, as the case may be, within one year of their acquisition by that company or that individual, as the case may be, then the sums allowable as deductions from the consideration in the computation for the purpose of capital gains tax of the gain or loss accruing to the company or the individual, as the case may be, on the disposal of those shares shall be determined without regard to any relief under this section which the company or the individual, as the case may be, has obtained, or would be entitled on due claim to obtain, except that where those sums exceed the consideration they shall be reduced by an amount equal to—

(i) the amount of the relevant deduction allowed to the allowable investor company or the qualifying individual, as the case may be, under this section in respect of the subscription for those shares, or

(ii) the amount of the excess, whichever is the lesser amount:

Provided that, if the disposal of shares is by a qualifying individual, and the disposal falls within section 13 (5) of the Capital Gains Tax Act, 1975 , the preceding provisions of this paragraph shall not apply.

(d) For the purposes of this subsection ‘new ordinary shares’ means new ordinary shares forming part of the ordinary share capital of a qualifying company which, throughout the period of one year commencing on the date such shares are issued, carry no present or future preferential right to dividends, or to a company's assets on its winding up, and no present or future preferential right to be redeemed.

(21) Section 157 of the Corporation Tax Act, 1976 , shall apply for the purposes of this section.

(22) In the case of an individual, all such provisions of the Income Tax Acts as apply in relation to the deductions specified in sections 138 to 142 of the Income Tax Act, 1967 , shall, with any necessary modifications, apply in relation to relief under this section.”.

(2) (a) Where an allowable investor company has in the period of twelve months ending on the 22nd day of January, 1997, paid a sum of money to which subsection (3) applies then the reference in subsection (4) of section 35 (inserted by subsection (1)) to £6,000,000 shall, in respect of that period, be construed as a reference to £6,000,000 less the amount or if there is more amounts than one the aggregate of such amounts, of such sums of money, and

(b) where a qualifying individual has in the year of assessment 1995-96 paid a sum of money to which subsection (3) applies, the reference in subsection (7) of section 35 (inserted by subsection (1)) to £25,000 shall, in respect of that year of assessment, be construed as a reference to £25,000 less that amount or, if there is more amounts than one the aggregate of such amounts, of such sums of money.

(3) Subsection (1) shall not apply as respects a sum of money which is paid on or after the 23rd day of January, 1996, and on or before the 31st day of March, 1996, where the sum of money is paid in respect of shares in a qualifying company, and—

(a) the Minister for Arts, Culture and the Gaeltacht had received before the 23rd day of January, 1996, an application in writing to give a certificate to the company stating, in relation to a film to be produced by the company, that the film is a qualifying film, and

(b) where a certificate is given by the Minister to the company after the 23rd day of January, 1996, it includes a statement that the Minister had received the said application before that date.

(4) As respects a sum of money—

(a) to which subsection (1) does not apply by virtue of subsection (3), or

(b) which is paid before the 23rd day of January, 1996,

the provisions of section 35 of the Finance Act, 1987 , which were in force immediately prior to the 23rd day of January, 1996, shall continue to have effect:

Provided that where the sum of money is a sum of money paid on or after the 6th day of April, 1995, or it is a sum of money to which subsection (3) applies and the sum of money is used for the purpose of enabling the qualifying company to produce a qualifying film in respect of which an application (to give a certificate under subsection (1A)) had not been received by the Minister before the 23rd day of January, 1996, the provisions shall have effect as if—

(i) subsection (2) was amended by the substitution for “a deduction of the amount of that investment” of “a deduction of an amount equal to 80 per cent. of that investment”, and

(ii) subsection (3A) was amended by the substitution for “a deduction of the amount of that investment” of “a deduction of an amount equal to 80 per cent. of that investment”.