Oops: Closing Tax Loophole Imperils British Film Industry

Speaking of tax loopholes, the British film industry claims it is being shut down thanks to the closure of one:

Tulip Fever, starring Jude Law, was to start filming in April – but is on hold after the government closed a tax loophole it said was being abused.

And The Libertine, with Johnny Depp – due to start filming on Monday – is also among 40 films in jeopardy.

The industry is hoping the government will agree to keep the loophole open for movies that are already under way.

The Inland Revenue says investors “exploited” the loophole by putting money into a film but pulling out before it reached cinemas – and avoiding paying tax on their investment. [BBC]

Buddy, if it’s there, it’s going to be exploited.

The film industry wants the government to keep it open for current productions to save them from collapse.

Producers had hoped to get a decision from the Inland Revenue on Thursday – but are now waiting for an announcement on Friday.

“As time drags on, it’s becoming more and more urgent,” according to Amy Seely of the British Screen Advisory Council.

“I believe some production companies are already laying off staff, which is a disaster. It’s the smaller companies that are in particular trouble.”

Recent boom

There have been dire warnings that the closure of the loophole would turn Britain into “a no-go area for film-makers” – reversing a current boom in film production.

Last year saw an 85% rise in overseas film spending in the UK.

I am sure the intent is not to shut down the film industry – a pretty good demonstration of the law of unintended consequences.

More details from the BBC:

What is this tax loophole?

Complicated. The “sideways loss relief” is intended to help people who risk their own money by running businesses in partnership with others – but end up making a genuine loss. They can then claim tax relief to soften the blow.

What has the film industry got to do with this?

Some investors are thought to put money into films without doing any work, and pull out of the partnership before the film reaches cinemas and makes money. They know they are going to make a loss, and take advantage of this loophole by claiming tax relief on their sum. So they end up paying less tax in total than they otherwise would.

….What will happen if this is not granted?

These films’ budgets will be thrown into disarray and many will not be able to afford the increased tax payments. Some could move to a cheaper country, such as in Eastern Europe – but many will simply not be able to absorb the costs of delays and relocation and be abandoned.

How will the film industry cope in the long term?

There have been warnings that this could be “a disaster” for the film industry and that Britain would become “a no-go area for film-makers”. Spending by Hollywood producers in the UK rose 85% to 409m [pounds] in 2003 – but that is likely to slump again as a result of these changes. That will mean fewer films being made in the UK, a smaller British industry and fewer jobs for those involved in making films.

That’s pretty stark: I think this shows that no matter how noble and fair your intentions, that a certain concentration of capital is necessary to generate projects, like movies or whatever, that employ people. There is at least a certain amount of truth to “trickle down” theory, no matter how unfair it may seem. Tax loopholes are there to encourage certain kinds of investment, specially risky investment – remove the incentive and often jobs, even entire industries, can disappear. I doubt this is what the government had in mind.