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Finance (No.2) Bill


Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

31

 

Film tax relief

38      

Films qualifying for film tax relief

A film qualifies for film tax relief if the conditions specified in the following

sections are met—

(a)   

section 39 (intended theatrical release),

5

(b)   

section 40 (British film), and

(c)   

section 41 (UK expenditure).

39      

Conditions of relief: intended theatrical release

(1)   

The film must be intended for theatrical release.

(2)   

For this purpose—

10

(a)   

“theatrical release” means exhibition to the paying public at the

commercial cinema;

(b)   

a film is not regarded as intended for theatrical release unless it is

intended that a significant proportion of the earnings from the film

should be obtained by such exhibition.

15

(3)   

Whether this condition is met is determined for each accounting period of the

film production company during which film-making activities are carried on

in relation to the film, in accordance with the following rules.

(4)   

If at the end of an accounting period the film is intended for theatrical release,

the condition is treated as having been met throughout that period (subject to

20

subsection (5)(b)).

(5)   

If at the end of an accounting period the film is not intended for theatrical

release, the condition—

(a)   

is treated as having been not met throughout that period, and

(b)   

cannot be met in any subsequent accounting period.

25

   

This does not affect any entitlement of the company to relief in an earlier

accounting period for which the condition was met.

40      

Conditions of relief: British film

The film must be certified by the Secretary of State as a British film under

Schedule 1 to the Films Act 1985 (c. 21).

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41      

Conditions of relief: UK expenditure

(1)   

Not less than 25% of the core expenditure on the film incurred—

(a)   

in the case of a British film other than a qualifying co-production, by the

film production company,

(b)   

in the case of a qualifying co-production, by the co-producers,

35

   

must be UK expenditure.

(2)   

The Treasury may by regulations amend the percentage specified in subsection

(1).

(3)   

No such regulations shall be made unless a draft of the regulations has been

laid before and approved by a resolution of the House of Commons.

40

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

32

 

42      

Film tax relief: further provisions

(1)   

Schedule 5 to this Act contains further provisions about film tax relief.

(2)   

In that Schedule—

Part 1 deals with entitlement to the relief;

Part 2 provides for the certification of British films for the purposes of the

5

relief;

Part 3 makes provision for claims for the relief;

Part 4 is about provisional entitlement to relief.

Film losses

43      

Films: restriction on use of losses while film in production

10

(1)   

This section applies to restrict the use that may be made of a film production

company’s trading loss for an accounting period before—

(a)   

that in which the film is completed, or

(b)   

where the company does not complete the film, that in which it

abandons film-making activities in relation to the film.

15

(2)   

A trading loss for such a period is not available for loss relief except to the

extent that it may be carried forward under section 393(1) of ICTA to be set

against profits of the same trade in a later period.

(3)   

In this section “loss relief” includes any means by which a loss might be used

to reduce the amount in respect of which the film production company, or any

20

other person, is chargeable to tax.

44      

Films: use of losses in later periods

(1)   

This section applies—

(a)   

to the accounting period—

(i)   

in which the film is completed, or

25

(ii)   

if the film production company does not complete the film, in

which it abandons film-making activities in relation to the film,

and

(b)   

to any subsequent accounting period during which the trade continues.

(2)   

Where a trading loss is carried forward to any such period under section 393(1)

30

of ICTA from an earlier period in relation to which section 43 applied

(restriction on use of losses while film is in production), so much (if any) of the

loss as is not attributable to film tax relief may be treated for the purposes of

loss relief as if it were a loss incurred in the period to which it is carried

forward.

35

(3)   

The amount of the trading loss for an accounting period to which this section

applies that may be—

(a)   

set against other profits of the same or an earlier period under section

393A of ICTA, or

(b)   

surrendered as group relief under section 403 of that Act,

40

   

is restricted to the amount (if any) that is not attributable to film tax relief.

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

33

 

(4)   

For the purposes of this section the amount of a trading loss in any period that

is attributable to film tax relief is calculated by deducting from the total amount

of the loss the amount there would have been if there had been no additional

deduction under Schedule 5 in that or any earlier period.

(5)   

In this section “loss relief” includes any means by which a loss might be used

5

to reduce the amount in respect of which the film production company, or any

other person, is chargeable to tax.

(6)   

This section does not apply to a loss to the extent that it is carried forward or

surrendered under section 45 (terminal losses).

45      

Films: terminal losses

10

(1)   

This section applies where—

(a)   

a film production company (“company A”) ceases to carry on a trade in

relation to a qualifying film, and

(b)   

if the company had not ceased to carry on the trade, it could have

carried forward an amount under section 393(1) of ICTA 1988 to be set

15

against profits of the same trade in a later period (the “terminal loss”).

(2)   

If on cessation of the trade company A is carrying on a trade in relation to

another qualifying film, it may on making a claim elect that the terminal loss or

a part of it shall be treated as if it were a loss brought forward under section

393(1) to be set against profits of that other trade in the accounting period

20

following that at the end of which the cessation takes place.

(3)   

If on cessation of the trade carried on by company A there is another film

production company (“company B”) which—

(a)   

is carrying on a trade in relation to a qualifying film (its “qualifying

trade”), and

25

(b)   

is in the same group as company A for the purposes of Chapter 4 of Part

10 of ICTA (group relief),

   

the whole or part of the terminal loss may be surrendered by company A to

company B.

(4)   

On the making of a claim by company B the amount surrendered shall be

30

treated as if it were a loss brought forward by that company under section

393(1) to be set against the profits of its qualifying trade for the accounting

period of that company following that in which or at the end of which the

cessation takes place of the qualifying trade carried on by company A.

(5)   

The Treasury may, in relation to the surrender of a loss under subsection (3)

35

and the resulting claim under subsection (4), make provision by regulations

corresponding, subject to such adaptations or other modifications as appear to

them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998

(company tax returns: claims for group relief).

(6)   

In this section—

40

(a)   

references to the trade carried on by a film production company in

relation to a film are to the trade that it is treated as carrying on under

Schedule 4, and

(b)   

references to a qualifying film are to a film that meets the conditions for

film tax relief (see section 38).

45

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

34

 

Films: withdrawal of existing reliefs

46      

Films: withdrawal of existing reliefs (corporation tax)

(1)   

Sections 40A to 40D of F(No.2)A 1992 (treatment of expenditure on production

or acquisition of film) do not apply—

(a)   

to production expenditure on a film that commences principal

5

photography on or after 1st April 2006;

(b)   

to acquisition expenditure—

(i)   

on a film that commences principal photography on or after 1st

April 2006, or

(ii)   

that is incurred on or after 1st October 2007 on a film (whenever

10

made).

(2)   

Section 41 of that Act (preliminary expenditure) does not apply to expenditure

incurred after the date on which this Act is passed.

(3)   

Section 42 of that Act and section 48 of F(No.2)A 1997 (special reliefs for British

films) do not apply—

15

(a)   

to production expenditure on a film that commences principal

photography on or after 1st April 2006;

(b)   

to acquisition expenditure—

(i)   

on a film that commences principal photography on or after 1st

April 2006, or

20

(ii)   

that is incurred on or after 1st October 2007.

(4)   

References in this section to expenditure on the acquisition of a film, or to sums

received from the disposal of a film, are to expenditure on the acquisition of, or

sums received from the disposal of, the original master version of the film.

(5)   

For this purpose—

25

(a)   

“original master version” means the original negative, tape or disc;

(b)   

references to the original master version of a film include the original

master version of the film soundtrack (if any);

(c)   

references to the original master version include any rights in the

original master version that are held or acquired with it.

30

47      

Films: withdrawal of existing reliefs (income tax)

(1)   

Sections 134 and 135 of ITTOIA 2005 (treatment of expenditure on production

or acquisition of film) do not apply—

(a)   

to production expenditure on a film that commences principal

photography on or after 1st April 2006;

35

(b)   

to acquisition expenditure—

(i)   

on a film that commences principal photography on or after 1st

April 2006, or

(ii)   

that is incurred on or after 1st October 2007 on a film (whenever

made).

40

(2)   

Section 137 of that Act (preliminary expenditure) does not apply to

expenditure incurred after the date on which this Act is passed.

(3)   

Sections 138 to 144 of that Act (special reliefs for British films) do not apply—

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

35

 

(a)   

to production expenditure on a film that commences principal

photography on or after 1st April 2006;

(b)   

to acquisition expenditure—

(i)   

on a film that commences principal photography on or after 1st

April 2006, or

5

(ii)   

that is incurred on or after 1st October 2007.

(4)   

References in this section to expenditure on the acquisition of a film, or to sums

received from the disposal of a film, are to expenditure on the acquisition of, or

sums received from the disposal of, the original master version of the film.

(5)   

For this purpose—

10

(a)   

“original master version” means the original negative, tape or disc;

(b)   

references to the original master version of a film include the original

master version of the film soundtrack (if any);

(c)   

references to the original master version include any rights in the

original master version that are held or acquired with it.

15

Corporation tax treatment of sound recordings

48      

Sound recordings: revenue nature of expenditure

(1)   

If a company carrying on a trade incurs expenditure on the production or

acquisition of the original master version of a sound recording, the expenditure

is treated for corporation tax purposes as expenditure of a revenue nature.

20

(2)   

If expenditure is treated under this section as revenue in nature, sums received

by the company from the disposal of the original master version of the sound

recording—

(a)   

are treated for corporation tax purposes as receipts of a revenue nature,

and

25

(b)   

are brought into account in calculating the profits of the relevant period

in which they are received.

(3)   

For this purpose sums received from the disposal of the original master version

include—

(a)   

sums received from the disposal of any interest or right in or over the

30

original master version (including an interest or right created by the

disposal), and

(b)   

insurance, compensation or similar money derived from the original

master version.

49      

Sound recordings: allocation of expenditure

35

(1)   

This section applies in calculating for the purposes of corporation tax the

profits or losses of a company from a trade where—

(a)   

the trade consists of or includes the exploitation of original master

versions of sound recordings, and

(b)   

the original master versions do not constitute trading stock of the trade

40

as defined by section 100(2) of ICTA.

(2)   

Expenditure that is—

(a)   

incurred on the production or acquisition of the original master version

of a sound recording, and

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

36

 

(b)   

expenditure of a revenue nature (whether as a result of section 48 or

otherwise),

   

must be allocated to relevant periods in accordance with this section.

(3)   

The company must allocate to a relevant period so much of the expenditure as

is just and reasonable having regard to—

5

(a)   

the amount of the expenditure that remains unallocated at the

beginning of the period,

(b)   

the proportion that the estimated value of the original master version

of the sound recording that is realised in that period (whether by way

of income or otherwise) bears to the aggregate of the value so realised

10

and the estimated remaining value of the original master version at the

end of the period, and

(c)   

the need to bring the whole of the expenditure into account over the

time during which the value of the original master version is expected

to be realised.

15

(4)   

The company may also allocate to a relevant period a further amount, so long

as the total amount allocated does not exceed the value of the original master

version of the sound recording realised in that period (whether by way of

income or otherwise).

50      

Sound recordings: interpretation

20

For the purposes of sections 48 and 49 (corporation tax treatment of sound

recordings)—

(a)   

“sound recording” does not include a film soundtrack;

(b)   

“original master version” means the master tape or master audio disc

of the recording;

25

(c)   

references to the original master version of a sound recording include

any rights in the original master version that are held or acquired with

it; and

(d)   

“relevant period” means—

(i)   

a period for which accounts of the trade are made up, or

30

(ii)   

if no accounts of the trade are made up for a period, an

accounting period of the company.

Supplementary provisions

51      

Corporation tax: films and sound recordings as intangible fixed assets

(1)   

In Schedule 29 to FA 2002 (corporation tax: gains and losses from intangible

35

fixed assets), for paragraph 80 (exclusion of films and sound recordings)

substitute—

“Assets excluded: certain films

80A   (1)  

This Schedule does not apply to an intangible fixed asset held by a

film production company to the extent that it represents production

40

expenditure on a film to which Schedule 4 of the Finance Act 2006

applies.

           

Expressions used in this sub-paragraph have the same meaning as in

Chapter 3 of Part 3 of the Finance Act 2006.

 
 

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 3 — Films and sound recordings

37

 

      (2)  

Except as regards royalties, this Schedule does not apply to an

intangible fixed asset held by a company to the extent that it

represents expenditure by the company—

(a)   

on the production of the original master version of a film that

commenced principal photography before 1st April 2006;

5

(b)   

on the acquisition before 1st October 2007 of the original

master version of a film that commenced principal

photography before 1st April 2006.

      (3)  

In sub-paragraph (2)—

(a)   

“film” has the same meaning as in Chapter 3 Part 3 of the

10

Finance Act 2006;

(b)   

“original master version” means the original negative, tape or

disc;

(c)   

references to the original master version of a film include the

original master version of the film soundtrack (if any);

15

(d)   

references to the original master version include any rights in

the original master version that are held or acquired with it.

Assets excluded except as regards royalties: sound recordings

80B   (1)  

Except as regards royalties, this Schedule does not apply to an

intangible fixed asset held by a company to the extent that it

20

represents expenditure by the company on the production or

acquisition of the master version of a sound recording.

      (2)  

For this purpose—

(a)   

“sound recording” does not include a film soundtrack;

(b)   

“master version” means master tape or master audio disc of

25

the recording;

(c)   

references to the master version include any rights in the

master version that are held or acquired with it.”.

(2)   

In determining for the purposes of that Schedule whether an asset representing

production expenditure on a film was created before or after 1st April 2002, the

30

asset shall be treated as created when the film was completed.

52      

Films: application of provisions to certain films already in production

(1)   

The Treasury may make provision by regulations for the application of the

provisions of this Chapter, and of any enactment amended by this Chapter, in

relation to films that commenced principal photography before 1st April 2006

35

but are not completed before 1st January 2007.

(2)   

The regulations may provide for such adaptations and modifications of the

provisions of this Chapter, of any enactment amended by this Chapter and of

any other provision of the Corporation Tax Acts, as appear to the Treasury

appropriate for that purpose.

40

(3)   

The regulations may—

(a)   

provide that the provisions of this Chapter (or any specified provisions

of this Chapter) shall have effect as if they had been in force at all

material times;

 
 

 
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