Tax Incentives for Films and
Audiovisual Works in France
October 2007
Hasan Bermek
Legal Information Department
European Audiovisual Observatory
List of abbreviations:
AMF
CGI
CNC
CSA
DGI
IFCIC
Autorité des Marchés Financiers
Code général des impôts – French tax code
Centre national de la Cinématographie – National Film Centre
Conseil supérieur de l’audiovisuel
Direction Générale des Impôts
Institut pour le Financement du cinéma et des Industries
Table of content
I)
The context of the French tax incentives.................................................. 5
A Direct State intervention:..................................................................... 6
B) Indirect intervention ............................................................................. 7
II.
Characteristics of tax incentive schemes ................................................. 9
III
Description of French tax incentives for films and audiovisual
works....................................................................................................... 12
A) Measures aimed at professionals of the film and audiovisual
sectors ............................................................................................... 12
1)
2)
3)
4)
5)
Tax credits for the production of films and audiovisual
works ......................................................................................... 12
Tax credit for distribution expenses of audiovisual
programmes .............................................................................. 16
Exemption from Business Tax .................................................. 17
Amortisation and Depreciation.................................................. 18
Special VAT rules...................................................................... 19
B) Measures aimed at investors ............................................................ 19
1)
2)
SOFICA ..................................................................................... 19
Investments in Overseas Departments and Territories ............ 22
3
4
The French State aid framework for the film and audiovisual industry is among
the most comprehensive in Europe. It is also endowed with the highest
financial resources in absolute terms. While direct aid distributed by the CNC
(National Film Centre) and the French regions remains the most visible
component of this scheme, this aid has been increasingly complemented with
more indirect financial mechanisms, and notably by tax incentives. This is also
reflected in the European Commission’s examination of the French support
scheme for films and audiovisual works, which received the Commission’s
global approval until 20111.
It is useful, therefore, to assess the position of tax-based support schemes in
the general context of State aid to the film and audiovisual industries in
France (I). It is important to note that, despite their specificities, tax incentives
share many features with more direct forms of aid (II).
This general assessment will then be followed by a more in-depth description
of the main tax support schemes in favour of the film and audiovisual sector,
including legal and practical aspects (III).
I) The context of the French tax incentives
The cultural dimension of films and audiovisual works is the main political
justification for the French state support system, which has always been one
of the major components of French cultural policy. This is also confirmed by
the fact that the CNC, created in 1946, operates under the supervision of the
Ministry of Culture and Communication and that the ‘radiance’ (rayonnement)
of French culture, and in particular of French cinema, is explicitly proclaimed
as an aim of the French State.
However, the French support scheme has often been described as being
mainly economic and as an important tool of industrial policy2. The terms ‘film
industry’ and ‘audiovisual industry’ regularly appear in the titles of regulatory
texts that organise this funding. The will to promote France as a shooting
location and to prevent relocations has also become more apparent over time,
in particular through increasing aid provided to technical industries and R&D.
Tax incentives have to be seen against the background of State aid provided
to the film and audiovisual industry in general and as an important component
of it. This aid may take several forms: It may involve a direct intervention of
the State or regional authorities, via a selective redistribution of resources by
public bodies (A). It may also entail the contribution of the private sector to the
1
Decision C(2006)832 Final of the Commission of 22 March 2006 (State Aid NN 84/2004 and
N 95/2004 — France, aid schemes for the cinema and audiovisual industry)
http://ec.europa.eu/comm/competition/state_aid/register/ii/doc/NN-84-2004-WLWL-fr22.03.2006.pdf
2
European Audiovisual Observatory, “Public funding for film and audiovisual works in Europe
– a comparative approach”, Strasbourg, 2004, p. 30.
5
film and audiovisual industry. The State intervention for this second type of
aid, which comprises tax incentives, mainly consists in obliging or
encouraging economic actors to invest in the industry (B).
A Direct State intervention:
This method of public aid consists in the provision of direct funding by the
French authorities to specific projects or companies. While funds distributed
by the French National Film Centre (CNC) remain by far the most important
component of this aid, the French regions and certain local authorities have
also been playing an increasingly important role. Other bodies, such as the
Ministry of Foreign affairs, also provide limited funding.
CNC distributes a wide array of automatic and selective aids to the film and
audiovisual industries, covering all stages of the value chain (development,
production, distribution and marketing, exploitation), as well as aid to technical
industries and research and development. The resources for this aid come
from the financial support fund for the film and audiovisual industry (Compte
de soutien financier de l'industrie cinématographique et de l'industrie
audiovisuelle). The fund, administered by the CNC, was established in 1956.
It was extended to audiovisual productions in 1986 and to video in 1993. The
fund is mainly financed by taxes and levies affecting the audiovisual sector
(i.e. tax on cinema admissions, tax on advertisement broadcasting, taxes on
DVDs and videos)3.
According to the figures provided by the French authorities to the
Commission, the CNC distributed EUR 251.62m to the film industry and EUR
221.11m to the audiovisual industry in 2006.
France also boasts the largest number of regional and local film funding
bodies in Europe. Most of these funds operate at the level of regions, but
certain departments, cities and towns also provide funding. In 2004, a new
generation of tripartite conventions (State-CNC-Regions) was put in place,
which involve a State contribution of one EUR for every two EUR awarded by
the regions. Regional Directorates of Cultural Affairs (DRAC, Directions
régionales des affaires culturelles), decentralised agencies of the Ministry of
Culture also participate in regional funding schemes via specific projects.
3
As this study will focus on tax incentives in favour of the film and audiovisual sector in
France, these taxes, as well as the license fee (redevance audiovisuelle), are excluded from
its scope.
6
B) Indirect intervention
The French authorities also seek to stimulate economic activity in the film and
audiovisual sector indirectly, either by imposing obligations on or giving
financial incentives to private actors. Tax-based incentives could be examined
under this category, which also includes statutory investment obligations for
broadcasters and loan guarantees.
1) Investment obligations: Television broadcasters in France have the
obligation to invest a set part of their turnover in film and audiovisual
productions. 3.2% of their turnover must be invested in European films (2.5%
in French films) and 16% to 18% in audiovisual works of “French original
expression” (d’expression originale française). For cinema channels, such as
Canal+, the obligation to invest in films is much higher – Canal+ must use
20% of its resources for the acquisition of films (12% minimum for European
films and 9% for French films). The respect of these obligations is supervised
by the French broadcasting regulatory authority (CSA, Conseil supérieur de
l’audiovisuel)4.
2) Loan guarantees: The French authorities also aim at encouraging banks to
give loans to films and audiovisual works, by covering part of the production
risks. For this purpose, the IFCIC5, a lending institution owned 49% by the
French State, was established. The IFCIC guarantees loans given by private
banks to film and audiovisual companies. According to figures provided by the
French authorities to the European Commission, it covered risks for a total
amount of EUR 117.1 million (films) and EUR 40.3 million euros (audiovisual
works) in 2005. The IFCIC guarantees these loans thanks to its own
resources, as well as money allocated by the CNC to a special fund (fonds de
garantie cinema/audiovisuel) every year (EUR 4.9m in 2005).
3) Tax incentives: Tax incentives have been increasingly used in order to
support the film and audiovisual industries. One can distinguish between two
types of measures, depending on their immediate beneficiaries:
a) Measures aimed at professionals of the film and audiovisual sectors
(production companies, distributors, exhibitors): These incentives reduce
the fiscal charges of these companies, thereby increasing their profitability,
competitiveness and attractiveness, and include:
- Tax credits for film and audiovisual productions (III.A.1);
- Tax credit for distribution of audiovisual works (III.A.2);
- partial or total exemption from business tax (III.A.3);
- special fiscal rules applying to amortisation of films and audiovisual
works and depreciation of technical equipment (III.A.4);
- Special VAT rules (III.A.5).
4
For details concerning the specific obligations of individual broadcasters:
http://www.csa.fr/infos/controle/television_quotas_production.php
5
Art. 3 of Decree no.99-130 of 24 February 1999 and the statute of IFCIC of 11 September
2002.
7
b) Measures aimed at investors: These measures seek to encourage
companies and physical persons, regardless of their field of activity, to
invest in the film and audiovisual industry, by reducing their corporation or
income tax liability. They include:
- SOFICAs (III.B.1);
- Tax advantages for investments in French overseas departments
and territories relating to the film and audiovisual sectors (III.B.2).
While the weight of fiscal incentives within the general promotion scheme is
very difficult to assess, the French authorities provided some estimates to the
Commission with respect to two schemes assessed by the latter (and cleared
as being compatible with the EC Treaty):
- SOFICAs collected EUR 46m, EUR 41.4m of which they invested in
76 film productions and 20 audiovisual productions in 2005.
- Tax deductions and refunds regarding tax credits for film and
audiovisual productions were EUR 45m and EUR 42m respectively in
2005. The French authorities estimated that the total cost of this
measure shall not exceed EUR 130.5m in a given year.
One has to bear in mind, however, that the distinction between direct and
indirect aid is not always clear-cut. Although direct aid is generally associated
with a more direct involvement of State authorities concerning decisionmaking and distribution, this is not necessarily the case. For example,
automatic aid mechanisms significantly reduce the scope of State discretion.
Also, while certain regulations relating to indirect support, such as statutory
investment obligations, apply to all private companies fulfilling certain
conditions, they can have a very individualised effect in practice: Canal+ was
the only cinema channel in France for a long period and as such was the only
company subject to the obligation of making substantial investments in film
production. Similarly, certain tax incentives, such as tax credits, are subject to
rigorous selection criteria and are approved by the State authorities at
different stages of the procedure.
The difference between the two methods is also blurred in terms of the source
of the aid. For instance, the subsidies distributed by the CNC, despite being
channelled via the CSA, are ultimately derived from the industry itself.
Conversely, the financial burden of the French tax incentives is ultimately
borne by the French Treasury - by relieving certain taxpayers from their fiscal
charges, the State forfeits part of its income. While this loss should in principle
be compensated by the taxation of the future profits of these schemes’
beneficiaries, as well as additional fiscal revenues generated by increased
economic activity in the relevant sectors, this is by no means guaranteed
owing to the risks inherent to the film and audiovisual industry.
8
II. Characteristics of tax incentive schemes
In terms of historical development, the SOFICA system introduced in 1985
was the first tax incentive for the film industry. A more direct measure, the tax
credit for film production companies was first introduced in 2004 and extended
to audiovisual productions in 2005. The perceived success of this measure
encouraged the French authorities to set up a tax credit for the distribution of
audiovisual programmes in 2006.
Similar to direct aid distributed by the CNC and the regions, the French tax
incentive schemes for the film and audiovisual industries intervene at all
relevant levels of the value chain:
-
Preproduction financing and capital formation (SOFICAs, incentives for
investments in overseas territories);
Production (tax credits, reduction of business tax, special rules relating
to amortisation and VAT);
Distribution (tax credit for distribution, reduction of business tax);
Exploitation (exemption of cinemas from business tax, reduced VAT
rates).
The various tax incentive schemes also mirror the direct aid schemes in terms
of territorial focus – while most tax-based support is borne by the French
Treasury, the reduction of business tax can be considered as a local aid, as
this tax is collected by local authorities.
Again similarly to direct aid, the CNC plays a significant role in the granting of
many of these tax advantages, via direct approvals of specific projects or
advice provided to the Ministry of Culture on the granting by the latter of such
approvals. These include notably the approval of SOFICAs or the approval of
investments (agrément d’investissement) necessary for the SOFICAs to invest
in a film, or the temporary and final approvals necessary for the tax credits for
film and audiovisual productions.
However, unlike the more traditional forms of State aid in this field, tax
incentives also imply the intervention of authorities of a primarily non-cultural
nature. For example, the French market regulation authority (AMF) intervenes
in connection with the approval of the financial structure of SOFICAs.
Naturally, the French fiscal services (Direction générale des Impôts, DGI),
under the Ministry of Finance, are ultimately responsible for the functioning of
all these tax advantages.
9
Tax incentives share other common features with direct aid measures:
-
Common definitions: Legal texts regulating the tax incentives make
reference to many concepts defined elsewhere, such as the French
Intellectual Property Code, the Film Industry Code or specific decrees.
These definitions include, for example, ‘film’, ‘audiviosual work’, ‘fiction’,
‘animation’, ‘documentary’, ‘auteur’, ‘executive producer’ (producteur
délégué), ‘pornographic works’, ‘art house’ (art et essai), etc.
-
Common criteria: Many criteria that condition access to direct funding
schemes in France are also applied to tax incentives. Notable
examples of this are:
o Language requirements: most tax incentives require the relevant
films and audiovisual works to be in French or in a regional
language of France, but make provision for certain exceptions,
in particular regarding foreign co-productions;
o Nationality: relevant for most tax incentives, nationality is
determined according to general criteria, including special rules
regarding co-productions. The film must in general be French or
have the nationality of a member State of the EU;
o Local spend: the territorialisation conditions used in tax
incentives use common elements with other funding schemes.
For example, with regard to production tax credits, the same
point system is used to determine the extent of expenditures
made in France as for direct funding provided by CNC.
o Exceptions: as for direct funding, certain types of works, such as
pornographic works or works inciting to violence, are not entitled
to any tax advantages.
-
Common documents and procedures: The granting of tax advantages
often depend on whether certain general documents have been
obtained, such as certificates for films (visa d’exploitation) or
investment approvals (agrément d’investissement). The procedures for
tax incentives also share common features with direct funding
procedures. For example, approvals needed for tax credits (agrément
provisoire and agrément à titre définitif) are modelled on direct funding
approvals (agréments d’investissement and agrément de production).
It is also important to note that tax-based support schemes can be combined
with other forms of support, with which they are considered to have a
cumulative effect for the purposes of the calculation of the total aid intensity
for a film or audiovisual work. This cumulative intensity may not exceed 50%
of the budget of a work, a threshold derived from the EU rules concerning
State aid.
Indeed, tax-based support to the film and audiovisual industries is treated as
State aid under EC law, in the same way as other forms of aid. The main
provisions are Articles 87 (1) and 87 (3) d of the EC Treaty, the respect of
which is ensured by the European Commission in accordance with the
10
principles defined in its relevant Communication6. Significantly, SOFICAs and
tax credits for films and audiovisual works were examined and cleared along
with other aid measures in the framework of the Commission’s examination of
the French State aid scheme for the film and audiovisual sectors. The French
authorities also specified that the new tax credit for the distribution of
audiovisual programmes shall be subject to the limits defined in the
Commission’s de minimis aid Regulation7.
6
Communication from the Commission to the Council, the European Parliament, the
Economic and Social Committee and the Committee of the Regions on certain legal aspects
relating to cinematographic and other audiovisual works, COM(2001)534 final, OJ C 043 of 16
February 2002.
7
Commission Regulation (EC) No 1998/2006 of 15 December 2006 on the application of
Articles 87 and 88 of the Treaty to de minimis aid, OJ L 379 of 28 December 2006.
11
III Description of French tax incentives for films and
audiovisual works
A) Measures aimed at professionals of the film and
audiovisual sectors
1) Tax credits for the production of films and audiovisual works
Legal basis
Articles 220 sexies and 220 F of the CGI and Articles 46 quarter-0 YL
to YR of its Appendix III;
Decrees no 2006-325 and 2006-317 of 20 March 2006
History/Introduction
A tax credit for film production was introduced with the 2004 Finance Act. This
scheme was modified and extended to audiovisual productions in 2005. Tax
credits are increasingly being used as a support method within the French
cultural promotion framework, as shown by the recent adoption of tax credits
for video games8 and phonographic works (including expenditure relating to
video clips)9.
These refundable tax credits complement CNC’s direct support to the film and
audiovisual industries, by reducing corporation tax owed by production
companies of eligible films or audiovisual works. The total amount of eligible
production costs determines the amount of the tax credit, subject to certain
limits. The tax credits are set off against the corporation tax due for the
accounting period concerned.
Conditions
a) Eligible companies
These must be film and audiovisual production companies:
- subject to corporation tax;
- acting as executive production companies (entreprises de production
déléguée)10 ;
8
Article 244 quater S of the CGI; introduced by Law nº 2007-309 of 5 March 2007 Art. 37 I, to
enter into force on 1 January 2008.
9
Article 220 octies of the CGI.
10
According to Article 6, para. 5 of the Decree no 99-130 of 24 February 1999 (film) and
Article 3.II of the Decree no 95-110 of 2 February 1995 (audiovisual), these are defined as
production companies which take the initiative for a film and assume the financial, technical
and artistic responsibility for its making. The number of companies having this quality cannot
be more than two for a single work.
12
-
complying with the applicable social legislation. They must notably not
use temporary contracts in order to fill permanent positions, i.e. jobs
not directly linked to the production of a specific work.
b) Eligible works
The eligible works are films and audiovisual works in the fiction, documentary
and animation genres. They must:
- be made entirely or mainly in French or in a regional language in use in
France11;
- be made mainly on French territory: This condition is considered
fulfilled if the work obtains at least half the points of the point system
used by CNC for the granting of financial support, depending on the
genre (except for the points allocated to the language of shooting
where relevant).
- have obtained from the CNC a provisional approval (agrément à titre
provisoire) and a final approval (agrément à titre définitif) for the tax
credit.
- contribute to the development and diversity of film and audiovisual
creation in France and in Europe.
The last condition is only satisfied if the ‘auteurs’12, performing artists and
production staff of the works are French or nationals of an EC or EEA member
State (or another eligible European State). In addition, audiovisual works need
to fulfil a number of criteria relating to minimum length and minimum
production costs as follows:
o Fiction – 45 minutes, EUR 5 000/min (EUR 3 000/min for works
for a young public);
o Documentary – 24 minutes, EUR 2 333/min;
o Animation – 24 minutes, EUR 3 000/min.
The following types of works are excluded from the benefit of the scheme
altogether:
o pornographic films or films inciting to violence;
o works which can be used for advertisement purposes;
o news programmes, talk-shows, sports programmes;
o works which have only ancillary elements of original creation.
The selection of qualifying works is made by an expert committee within CNC.
11
Except for texts sung in the original language of the libretto and documentary films, whose
subject justifies the use of a foreign language. Any post-synchronisation of such documentary
films or animated works must however be in French or a regional language of France (Art. 2
of Decree no.2006-325).
12
Those who are responsible for the intellectual creation of the work. In accordance with in
Article L. 113-7 of the French Intellectual Property Code, these are notably the author of the
script, the adaptation or the dialogues, the composer of the original soundtrack and the
director.
13
c) Eligible costs:
These have been detailed under Articles 46 quater-0 YM to YO of the CGI,
and globally fall under the following categories:
- Remunerations paid to ‘auteurs’ and related social charges (since
2006);
- Remunerations paid to lead and supporting actors (up to the minimum
amounts fixed in relevant collective agreements) and related social
charges (to the extent that they are obligatory) (since 2006);
- Salaries paid by the production company to technical staff and
production workers, as well as related obligatory social charges. For
technicians and workers with permanent contracts, only the period
during which they were actually working on the work concerned is
taken into account.
- For films and documentaries, shooting costs:
o use of studios (including construction of sets);
o special effects;
o costumes, hair and make-up;
o technical material for filming.
For animations:
o costs of specialised service providers for the preparation and
manufacturing of animations;
o use of necessary technical material.
- Post-production costs, including visual effects:
- Film stock (or other media) and laboratory expenses.
Calculation of the tax credit
The tax credit is equal to 20% of the abovementioned eligible costs. These
costs may not exceed 80% of the total production budget (or of the French
part in an international co-production). If there are two executive production
companies working on the same project, the tax credit is distributed in
proportion to their contribution to the costs (and not according to their shares
in the co-production).
The tax credit for a single work may not exceed:
- for films, EUR 1 000 000.
- for audiovisual works:
o fiction or documentary: EUR 1 150 per minute produced and
delivered.
o animated works: EUR 1 200 per minute produced and delivered.
Grants received from public bodies also enter into the calculations. Subsidies
directly used to cover eligible production costs are deducted from total eligible
costs. For subsidies granted to a work globally (such as the automatic and
selective aid granted by the CNC), the deduction is proportional to the weight
of the eligible costs within the total production budget13.
13
For example, if eligible costs are EUR 1.2m for a total production budget of EUR 2m, this
ratio would be 60% (1.2m/2m). If the production company receives an automatic financial
support of EUR 200 000 for the work concerned, EUR 120 000 (60% of EUR 200 000) has to
14
It is important to note that under general rules relating to subsidies, the
combination of different public subsidies, including the tax credit, may not
exceed 50% of the total production budget for a single work. This threshold is
raised to 60% for difficult films (1st or 2nd film of the director) or low-budget
works (a budget of less than EUR 1m).
Use of the tax credit
For each accounting period in which the executive production company incurs
eligible expenses, the corresponding tax credit is deducted from the
corporation tax payable by that company. If the tax credit exceeds the
corporation tax due, the surplus is treated as a claim on the Treasury, payable
to the production company. In such cases, a refund request must be made to
the “comptable chargé du recouvrement de l’impôt sur les sociétés”.
Control/Reimbursement
Tax credits received by the executive production company may have to be
reimbursed for two reasons:
- failure to obtain CNC’s final approval for tax credit: This approval must
be obtained within the eight months following:
o for a film, its certification (date of delivery of the visa
d’exploitation);
o for an audiovisual work, its completion (date of acceptance by a
TV channel).
- failure to complete the work: the work has to be completed within the
two years following the end of the last accounting period having given
rise to a tax credit.
Procedural aspects
1) Before photography commences, a letter requesting the benefit of the tax
credit has to be sent to the Director General of the CNC. For co-productions,
each production company must submit a separate request. This letter must
specify the title of the work, the names of the ‘auteurs’ and the director and
the provisional date for the beginning of photography. This letter must be
accompanied by the contracts of the ‘auteurs’, an estimate (devis) of
production costs, as well as a provisional financing plan.
Only costs incurred after the reception of this request by the CNC are eligible
for the tax credit.
2) A provisional approval (agrément à titre provisoire) is delivered by the CNC
within the six months following the initial request, after the opinion of the
committee of experts and the submission of justifying documents.
be deducted from the eligible costs. The final tax credit would therefore be therefore EUR 216
000 (20% of EUR 1 080 000) instead of EUR 240 000 (20% of EUR 1.2m).
15
The provisional approval is only delivered after an Approval Commission
(commission d’agrément) has examined the request for an investment
approval (agrément d’investissement).
3) CNC sends the provisional approval to the executive production company
(or companies). The latter must send a copy of this document to the
“comptable chargé du recouvrement de l’impôt sur les sociétés”.
4) The production company receives a tax credit for all eligible costs incurred
during the accounting periods following the delivery of the provisional
approval.
5) A final approval by CNC must be requested and obtained within 8 months
following, for films, the delivery of the visa d’exploitation and, for audiovisual
works, the acceptance of the work by a TV channel. For a film, the delivery of
the final approval takes place after the delivery of the agrément de production.
2) Tax credit for distribution expenses of audiovisual programmes
Legal basis:
Article 220 duodecies of the CGI
History/Introduction
This new tax credit was introduced by the amending Finance Act for 2006 of
30 December 2006.
In order to avoid a new State aid notification, the text provides that the tax
credit shall be subject to the limits stipulated in the Commission’s de minimis
Regulation. The latest version of this Regulation (Commission Regulation
(EC) no 1998/2006 on the application of Articles 87 and 88 of the Treaty to de
minimis aid) thus effectively restricts this tax credit to a maximum of EUR
200 000 over a period of three consecutive accounting periods.
Conditions
a) Eligible companies
In order to qualify for the tax credit, distribution companies have to be
independent from broadcasters (éditeurs de services de television) and their
activities relating to the marketing of audiovisual programmes or formats must
have generated a turnover of at least EUR 85 000 in the preceding fiscal year.
A minimum 80% and 60% of their distribution turnover has to be devoted to
European and French works respectively.
b) Eligible works
The tax credit only applies to audiovisual works made entirely or principally in
French or in a regional language of France. Pornographic works or
16
programmes inciting to violence, as well as works having only ancillary
elements of original creation may not benefit from this tax credit.
c) Eligible costs
The eligible costs fall under the three following categories:
1) International marketing:
- advance payments made for the financing of production expenses;
- costs relating to restoration, creation of new master copies in high
definition, dubbing, subtitling, copying, digitalising, reformatting or
clearing of rights held by production companies which distribute
their own programmes.
2) Artistic costs: remunerations paid to dubbing artists, to the extent that they
correspond to the minimum amounts fixed in relevant collective agreements,
and related social charges, to the extent that they are obligatory.
3) Modernisation of tools and employment qualifications
Technical materials and software for creating online catalogues;
IT investments for the administrative and accounting follow-up of sales and
rights management;
Professional training for marketing and exporting audiovisual programmes.
Calculation
The tax credit is capped at 80% of the total distribution budget of the work
concerned. It is equal to 20% of eligible distribution costs incurred in France
during an accounting period ending in 2007 or 2008, provided that no
promotion subsidy or another tax credit has been used to cover these costs.
This tax credit being relatively recent, the Ministry of Finance has not yet
issued an official bulletin defining in detail the use that can be made of this tax
credit, its control and reimbursement, as well as the relevant procedures.
3) Exemption from Business Tax
Business tax (taxe professionnelle) is a local tax, paid by companies and selfemployed persons. Its rates are determined by the local authority concerned,
within the limits set by the central state. Business tax is subject to a ceiling,
which is calculated in proportion to the added value produced by the company
concerned in a given year (currently 3.5%, Art. 1647 B sexies of the CGI).
As far as the film and audiovisual industries are concerned, special rules
apply to producers, distributors and cinemas.
17
Producers: Under French fiscal rules, the production of a film is normally
considered a self-constructed asset (production immobilisée) and thus
constitutes an added value. However, for the purposes of the calculation of
business tax, the authorities allow for these intangible assets to be deducted
from the total added value produced by a production company, in so far as
these assets also qualify for the special amortisation rules detailed below (see
4).
Distributors: As of 2004, and subject to certain conditions, distributors are
allowed to deduct from their added value all minimum guarantees paid to
producers14.
Cinemas; Article 1464 A of the CGI authorises local authorities to exempt,
partially or totally, cinemas from business tax. The upper limits of this
exemption are:
- 100% for cinemas which have less than 5 000 admissions per week
and which have been classified, for the purposes of the year of
reference, as arthouse (art et essai)15.
- 66% for cinemas, located in municipalities (commune) with less than
100 000 inhabitants, which have less than 2 000 admissions per week.
- 33% for all other cinemas located in municipalities with less than
100 000 inhabitants.
These exemptions are subject to a decision by the local authority to this effect
and apply regardless of the number of screens of the cinemas concerned.
4) Amortisation and Depreciation
Amortisation of films and audiovisual works:
Films and audiovisual works are self-constructed intangible assets (production
immobilisée). Producers of films and audiovisual works or distributors who
hold their exploitation rights, are allowed to amortise these works under a
special regime, independently of their useful life.
The depreciation of films and audiovisual works take place over one year and
the following coefficients apply to each month after completion16:
Month
Depreciation rate
1
30%
2
25%
3
20%
4
15%
5-6
2%
7-12
1%
At the end of an accounting period, producers and distributors may allocate all
net receipts17 of a specific work to its amortisation (i.e. deduct them from their
revenues), within the depreciation limits detailed above. If at the end of an
14
Bulletin Officiel des Impôts, 6-E-11-05 no 174 of 21 October 2005.
Decree no.2002-568 of 22 April 2002 regulates the definition and classification of arthouse
cinemas.
16
Delivery of visa d’exploitation (films) or attestation d’acceptation (audiovisual products).
17
Net receipts are defined as gross box office receipts minus distribution expenses and a part
of general exploitation costs (in proportion to gross receipts of other films being exploited).
15
18
accounting year, the net receipts of a work are lower than the total
depreciation allowed, the remaining part can be amortised with receipts of
other works in respect of which the depreciation limits have been exceeded.
Treatment of technical subsidies to the film sector
Article 39 sexies of the CGI provides that financial aid provided to cinemas
and to technical industries, for the equipment and modernisation of studios
and laboratories, is considered as taxable profit for the companies concerned.
However, subsidies which have been used to finance fixed assets (considered
as depreciable property (immobilisation amortissable) from a fiscal point of
view) are allocated to the exceptional depreciation of the assets concerned.
5) Special VAT rules
In France, the reduced VAT rate of 5.5% applies to:
- cinema admissions (Art. 279 b quinquies of the CGI);
- transfer of film rights (Art. 279 g).
From a fiscal point of view, a cinematographic work fixed on a physical
medium is considered as a capital expenditure. It should therefore normally be
subject to VAT at its cost price, as a self-delivery of the producer, (Art. 257,
para. 8 of the CGI). Nevertheless, the French fiscal authorities allow for VAT
not to be applied to this operation, but only to receipts from the licensing and
transfer of rights relating to the film concerned.
B) Measures aimed at investors
1) SOFICA
Legal basis
Articles 199 unvicies, 217 septies, 238 bis HE to HM of the CGI, and
Articles 46 quindecies A to F of its Appendix III;
Decree no 95-544 of 2 May 1995.
History/Introduction
Introduced in 1985, SOFICAs (Sociétés pour le Financement du Cinéma et de
l’Audiovisuel, Companies for the financing of films and audiovisual works) are
public limited companies subject to corporation tax. They act as investment
funds whose sole activity is the financing of films and audiovisual works.
When a certain number of conditions are met (1), an investment in the shares
of these companies entitles physical and legal persons to certain tax benefits
(2).
19
SOFICAs have a statutory lifetime of 10 years. At the end of this period, they
are liquidated and their net assets are distributed to their shareholders in
proportion to their stakes in the SOFICA.
Conditions
The tax benefits are subject to a certain number of conditions, relating to the
capital structure and activity of the SOFICA concerned (a), as well as to the
selection of works they finance (b) and the form this financing takes (c).
a) Conditions relating to the capital structure and activities of SOFICAs:
The initial capital of SOFICAs, as well as any subsequent increase of their
capital, must be pre-approved18 before any subscription for shares takes
place. For a period of five years following the first subscription, either for the
initial capital or any increase, no one person may hold, directly or indirectly19,
more than 25% of a SOFICA’s shares. All subscriptions have to be made in
cash.
In accordance with Article 238 bis HE of the CGI, a SOFICA’s sole activity is
the financing of cinematographic and audiovisual works. Nevertheless, the law
allows SOFICAs to invest up to 10% of their share capital in interest-bearing
accounts, provided that the funds remain liquid. Failure to comply with this
condition results in fines for the SOFICA20 and a reappraisal of the tax
benefits consented to its shareholders.
b) Conditions relating to the works financed21
These works must:
- be made in French;
- have the nationality of a member State of the European Community;
- have been accredited by the Director General of the CNC22.
Nevertheless, up to 20% of the SOFICA’s funds may be used to finance coproductions in a foreign language, provided that it is the language of an EC
member State where the majority co-producer is established. Certain types of
audiovisual works are excluded from the scope of the SOFICA regime
altogether23.
18
Agrément (approval) delivered by the Direction général des impôts, according to Article
1649 nonies of the CGI, following opinions of the CNC and the AMF (autorité des marchés
financiers).
19
This includes holding via an intermediary or a community of interests. For example, if a
physical person holds 80% of the shares of a company which holds 20% of the shares of a
SOFICA, that physical person is considered to hold 16% of the SOFICA.
20
A fine equal to 25% of the capital used inappropriately.
21
Article 238 bis HF of the CGI
22
The conditions for the delivery of this accreditation have been laid down by the Decree no
95-544 of 2 May 1995. In particular, the accreditation is considered to be given if the work
obtained from the CNC an “agrément d’investissement” (Art. 2, films) or an “autorisation
préalable” (Art. 3, other audiovisual works).
23
Notably, pornographic works, works inciting to violence, works which could be used for
publicity purposes, news programmes, talk shows, sports and entertainment programmes,
works whose creative component is only ancillary.
20
In addition, the appendices to the decisions of approval of individual SOFICAs
specify that 35% of their funds should be used to finance independent
productions24.
c) Conditions relating to the form of financing:
The applicable law provides for two alternatives:
1) Acquisition of shares of production companies: These must be
companies, subject to corporation tax, whose sole activity is the
production of cinematographic or audiovisual works (This form of
financing remains marginal).
2) Cash payments made under a partnership contract: These contracts
entitle SOFICAs to a part of the financed work’s box office receipts.
The payments must be made before the start of photography and may
not exceed 50% of the work’s total budget. Such contracts do not
confer on SOFICAs any exploitation rights per se or entitle them to
public support for cinematographic or audiovisual works.
Fiscal advantages for subscribers
In order to benefit from the following advantages, the physical or legal persons
concerned must keep their shares of SOFICAs for at least five years following
their acquisition.
Effects concerning Corporation Tax:
The fiscal advantage for companies investing in SOFICAs takes the form of
an exceptional amortisation (amortissement exceptionnel). In accordance with
Article 217 septies of the CGI, companies subject to corporation tax can write
off 50% of cash payments made for SOFICA shares against taxable profits.
Effects concerning Income Tax:
Physical persons or other persons25 subject to income tax investing in
SOFICAs are also eligible for certain tax advantages, which have been
significantly modified in December 200626. Whereas under the old system
investments in SOFICAs were set off against taxable income, the new Article
199 unvicies of the CGI introduces a direct tax relief (réduction d’impôt) for
subscriptions made between 1 January 2006 and 31 December 2008.
This entails a reduction of income tax due, without the recalculation of taxable
income. The reduction is equal to 40% of cash payments made for shares of a
SOFICA (capped at 25% of total net income and EUR 18 000). This allows for
a tax relief of up to EUR 7 200, for a net income higher than EUR 72 000. If
the SOFICA concerned undertakes to use 10% of its capital to acquire shares
24
Report by Jean-Pierre Leclerc, commissioned by the French Ministry of Culture and
Communication, « Réflexions sur le dispositif français de soutien à la production
cinématographique », January 2003, p. 92.
http://www.culture.gouv.fr/culture/actualites/rapports/leclerc/rapportleclerc.pdf
25
e.g. certain partnerships (sociétés de personnes), enterprises individuelles.
26
Article 102 of the amending Finance Act for 2006 no 2006-1771 of 30 December 2006
repealed Art. 163 septdecies of the CGI and inserted Art. 199 unvicies instead.
21
of production companies (first method of financing), the tax relief is increased
to 48% (up to EUR 8 640).
Procedural aspects
The SOFICAs deliver to all their subscribers a yearly statement including
information on the SOFICA and the shareholder[27].In case of a transfer of
shares within 5 years of their subscription, the SOFICA must inform the
competent fiscal authorities by sending them a copy of the abovementioned
statement. In order to benefit from the tax advantages, the subscribers must
attach this statement to their tax returns.
2) Investments in Overseas Departments and Territories
The French Tax Code provides for a number of fiscal incentives concerning
investments in overseas departments and territories (DOM/TOM).
Investments in activities relating to the production, distribution and
broadcasting of films and audiovisual works are eligible for these measures.
These must be productive capital investments, leading to new, tangible and
depreciable fixed assets on the balance sheets of the beneficiary companies.
For physical persons, such investments allow a tax relief (réduction d’impôt) of
50% of the cost price of the fixed asset concerned.
Companies subject to corporation tax may write off relevant direct investments
(or subscriptions for shares of companies which make such investments)
against their taxable profits.
27
The statement must contain information on :
- the identity and address of the shareholder;
- the amount of capital approved and the date of approval;
- the number of subscribed shares (nombres et numéros!!!) and date of subscription;
- percentage of capital held by the subscriber;
- the date and amount of subscription payments;
- if need be, the number of shares sold by the subscriber, as well as the date and
amount of the corresponding transfer.
(Article 46 quindecies E, Appendix III of the CGI)
22