Overview and general definitions: meaning of 'film production company'
The tax regime for film production introduced by FA06 is targeted at film production companies (FPCs).
An FPC is the company that actually makes a film. This may sound like a statement of the obvious, but it embodies the purpose of the relief, which is aimed at film production activity - i.e. at the film’s manufacturing process, rather than its creative gestation.
Although the Film Tax Relief (FTR) for British films in FA06/SCH5 is restricted to production of films for the commercial cinema, the basic tax treatment prescribed by FA06/SCH4 covers a wider range of films, including those made for television, DVD and other media (FPC10110).
An FPC may therefore produce a film not intended for theatrical release. Such a film will not, though, be eligible for FTR - (FPC40000).
FPC: defining characteristics
In order to qualify as an FPC in relation to a film, a company must:
- be responsible for the:
- pre-production ,
- principal photography,
- post production and
delivery of the film on completion.
Whilst an FPC might also have responsibility for the development, marketing and distribution of the film, there is no requirement that it does so.
- be actively engaged in production planning and decision-making during the pre-production , principal photography and post production stages of the film; and
- directly negotiate, contract and pay for rights, goods and services relating to the film.
The rules are slightly different in the case of co-productions - see FPC70000.
An FPC need not be directly responsible for every aspect of every one of these activities, nor is a third party prevented from undertaking some of these activities on behalf of an FPC. It is standard industry practice to commission third parties to deliver specific elements of film production such as set construction, special effects or location work. Where this is the case, a company will not be prevented from being treated as the FPC for tax purposes.
But an FPC must have some involvement in each of these categories. And it cannot simply commission the entire production of the film from someone else without having any active engagement itself. Equally, the third parties mentioned above, which are only responsible for specific elements of film production, such as post-production or sound editing, are also excluded.
The FPC and its subcontractors will probably not be the only parties involved with the film. In many cases the FPC will have been commissioned, by another person, to make the film. Again, the definition is intended to ensure that it is the FPC, not that other person, that can claim FTR. The requirements that the FPC be actively engaged, and that it directly negotiate, contract and pay for rights, goods and services, are intended to reinforce this distinction. It is worth stressing that the FPC need not (and generally will not) be the only party that negotiates, directly contracts and pays for things, nor need it pay for all the rights, goods and services.
A screenwriter approaches Studio A with an idea for a film. The studio agrees to fund its development, including commissioning a full screenplay from the writer. The film proceeds from development to pre-production. Company B is established by A to make the film. B takes on the work in pre-production, including certain obligations and rights previously held by A. B then continues to make the film.
Although B had no involvement at all in the early creative decisions made during development, it has been directly responsible for pre-production. Moreover, once B is established and assumes overall control of the delivery of the film it can (subject of course to whatever is required by its contract with A) revisit work already done in the early development stage.
B therefore meets the definition of an FPC.
Election not be regarded as an FPC
A company may elect to be treated as not satisfying the conditions set out above. It can make such an election when making or amending its company tax return.
Such a company would not be an FPC. It would therefore be outside the film tax regime introduced by FA06 and consequently:
- would be taxed according to normal principles, and
- would not be eligible for FTR.
Any such election has effect for all films starting principal photography in the period to which the return relates or in later periods. An election may be withdrawn by amending the return, within the normal time limit, but after this time limit is reached, may not be revoked.
No more than one FPC per film
There can be no more than one FPC for any film.
In some cases it is possible that more than one company will meet the requirements for qualifying as a FPC. In such circumstances, the company which is most directly engaged in the activities described above will be treated as the FPC.
The phrase ‘most directly engaged’ is not defined in the legislation; this can only be decided on the facts of each case.
If there is no company which meets the requirements of this definition, then there will be no FPC in relation to that film.
Companies in partnership & co-productions
Although the definition of an FPC excludes those making a film in partnership, a company is not automatically debarred from being an FPC merely because it is a member of a partnership, only from being an FPC in respect of a film that it is making in partnership. This ensures that the tests are applied to a single company. Otherwise, the tax treatment of one company could be dependent on the collective actions of other persons.
The fact that several persons are making a film as co-producers does not necessarily mean that a partnership exists. Whilst film makers work collaboratively together to produce a co-production, they do not necessarily do so as legal partners - partnership has a specific meaning in law, and whether or not a partnership exists will depend on the facts of the particular case.
For further details on the treatment of co-productions see FPC70000.