07/03/2007

Resigned over last week’s decision to revamp the UK tax relief system by eliminating GAAP financing schemes (see article), film industry insiders nevertheless lobbied vehemently to exempt sale-and-leaseback funding from the new tax rules, to no avail.

The UK government has confirmed it will make no exception for sale-and-leaseback funding in its attempt to curtail “sideways loss relief” schemes throughout various industries, in which wealthy individual investors could write off their losses from certain investments against gains from others.

Sale-and-leaseback is an innovative form of asset financing, which in this case allows the owner of a film’s rights to sell the title to a leasing company and then lease it back. This simultaneously provides an immediate increase in the selling company’s cash flow and working capital and immediate access to the film.

GAAP and sale-and-leaseback funding have been the backbone of current UK film financing and the government’s decision to eradicate both has left the industry reeling. The relief offered by the schemes is behind the majority of recent UK films, both independent and high-profile titles such as The Queen [+see also:
film review
trailer
interview: Andy Harries
interview: Stephen Frears
film profile] and Casino Royale [+see also:
trailer
film profile].

While the government has stressed that the new tax rules were targeting all industries, not only cinema, the UK Film Council, producers group PACT and individual producers have been frantically compiling detailed film lists to assess the scope of the damage. They plan to present the lists and reports to the government in an attempt to overturn this decision.

According to Tim Willis, PACT's director of film, "We need to explain that those involved are often one- or two-man bands putting their neck on the line to cashflow sale and leaseback according to established practice".