julian_craster

British movies savaged on Black Friday
U.K. government outlaws so-called GAAP tax funds
FROM VARIETY
By ADAM DAWTREY LONDON —

The British film industry suffered a massive blow Friday, when the U.K. government moved to outlaw tax funds that have invested hundreds of millions of pounds in movies made by indies and U.S. studios over the past couple of years.
The clampdown appears to put an immediate stop to the so-called GAAP funds run by the likes of Ingenious, Scion, Future and Prescience.
The effect will be to decimate British film production. Several projects that were due to shoot in the coming weeks, such as "St Trinians" and "Brideshead Revisited," were relying on these GAAP funds for around a third of their budgets.
The loss of this form of financing will make the U.K., already suffering from the strength of the pound against the dollar, much less viable as a production location for U.S. studios — even though the government, paradoxically, has just introduced a generous new tax credit for British-based production specifically tailored to attract the Hollywood majors.
But the greatest damage will be done to British indie producers. "Without the GAAP funds, it brings the British film industry almost to its knees," said Scion topper Jeff Abberley. "It makes it virtually impossible to fund an independent film out of the U.K."
Industry insiders are already dubbing March 2 as "Black Friday." It's a painful repeat of the events of Feb. 10, 2004, the so-called "Black Tuesday" when the government suddenly shut down a previous generation of GAAP funds from many of the same financiers.
The result then was that dozens of film projects fell apart, some only days away from the start of production. But eventually the fund operators adapted their schemes to the new rules, and returned to the market with even more money than before.
In the last tax year, it's estimated that the combined GAAP sector invested around £800 million ($1.56 billion) into production.
Ingenious, the single biggest player in the sector, has put up equity finance worth around a third of the budgets for dozens of movies of all shapes and sizes, from "X-Men: The Last Stand," "Garfield 2," "Sunshine" and "Stardust" to Mike Leigh's next untitled movie, recent Berlin prizewinner "Hallam Foe" and "Amazing Grace."
Scion has developed a close relationship with the Universal family of Working Title and Focus. Its recent slate of investments includes "The Golden Age" and "Atonement" from WT, and "In Bruges," and "Eastern Promises" from Focus.
Since these films are already in production, they will not be affected by the latest clampdown. However, future deals on similar movies will not now be possible.
The government has shut down a mechanism called "sideways loss relief," which allowed investors to write off a loss from one business against profits from another, and therefore reduce their tax bill. That was the principle on which the GAAP funds were based.
The clampdown also has the effect of shutting down the final few remaining sale and leaseback deals left over from the previous film tax breaks, Section 42 and Section 48. These tax breaks ended last year, but a transitional arrangement was put in place to allow S&L deals for a handful of movies that weren't deemed British enough to qualify for the new production tax credit.
Mike Newell's "Love in the Time of Cholera" is one example of a movie that was expecting to use an S&L deal under these transitional arrangements, and now may not be able to do so.

johnlassiter

I don't think you should always believe what you read in the papers - such as here.

GAAP schemes are not film funds - they are schemes which wealthy individuals (footballers and city brokers, etc.) use to avoid paying income tax. It just so happened that some film financiers were using them to raise money for films - but the Government's action in closing the schemes down was not an attack on the film industry, and certainly not the British film industry.