Overview of the French tax credit for film and television production

February 29, 2016

The French tax credit for cinema and television productions has been substantially revised as of January 2016 in response to concerns expressed by most players in the sector and risks of massive relocation of shootings to more welcoming territories.

We sum up below the main characteristics of the newly enhanced, now very competitive tax incentive.

  1. Context of the 2016 reform

France proposes two alternative tax credit mechanisms for cinema and television production: the first, intended for national productions, also known as “national tax credit”[1], and the second, more recent[2], conceived for local servicing of foreign productions (other than documentary films) – also known as the tax rebate for international productions or TRIP.

Before the 2016 reform, the national tax credit was equal to 20% of the global eligible expenses incurred in France. It was subjected for theatrical films to a €4M cap and for television programs, depending on their genre, to a cap per minute between €1,150 and €5,000. As of March 2015, low budget (under €4M) theatrical productions had been awarded an exceptional tax credit rate at 30%.

The TRIP rate was 20%, based on the total eligible expenses incurred for operations and services located in France. In 2015, the cap had been increased from €10M to €20M.

A comparative study of the different tax incentives in seven countries in Europe (including France) and Canada commissioned by the French film authority (the CNC[3]) and published in the fall of 2014[4] revealed the lack of economic attractiveness of the national tax credit for a set of reasons including the unconvincing 20% rate and the very restrictive €4M credit cap for theatrical films, as well as the limitations relating to the use of French language or the European control of the production company.

From a strictly financial perspective, in 2013, the French tax credit represented merely 7.9 % of the production costs of the French films accredited by the CNC, which was very low compared to competing mechanisms abroad: the German grant covered 12.2 % of the production budgets, the Belgian tax shelter 18.9 %, and the federal and provincial tax credits in Canada 27 %.

A substantial reform for sustainable results appeared as very necessary, especially as some of the foreign competing mechanisms continued to gain in attractiveness during 2015 (e.g. the British tax relief rate was pushed up to 25% of the eligible production expenses, regardless of the production budget; the Irish tax relief has been increased to 32% with a cap in absolute value of €16M and the cap is expected to rise further to €22.4M in 2016; the Belgian tax shelter was reformed and simplified).

As a result of the latest reform, the number of shootings on French territory is expected to increase significantly. The good news should, at the same time, re-enchant the French productions and official international co-productions that planned to choose cheaper locations abroad (with the cost of losing points in the automatic subsidy system), and attract foreign productions, which now can benefit of high quality services at very competitive prices in Europe. Among the foreign productions having confirmed shootings in France, Variety[5] cites “Dunkirk” by Christopher Nolan and Neil Jordan’s series “Riviera”, both set to take place in France but initially planned to be turned abroad for financial reasons.

If a regret persists among producers, it is not to see the increasing benefits granted to film and television production expand to original audiovisual creations in advertising. The latter are not eligible for any tax incentive, despite sharing some of the budget constraints faced by the film industry (such as the controversial application of the collective bargaining agreement for “film production”) and the large relocation of shootings abroad. It seems unlikely, though, that the authorities intervene in the short term in this regard.

  1. The national tax credit mechanism

This mechanism is meant to help financing French productions and official international co-productions.
The reform has the major benefits of broadening the access of foreign language films and increasing the overall rate and cap of the tax credit that can be claimed. The mechanism still remains inaccessible to non-European capitals, but for the latter the international tax credit is now available at the maximum rate of 30%.

  • What works qualify?

The national tax credit can be claimed for any feature film for cinema and any audiovisual work in the categories of fiction, animation and documentary, subject to additional requirements. Sport programmes, news programmes, reality and entertainment shows and content that can be used for advertising purposes, is pornographic or incites to violence may not qualify.

The prerequisite consisting of the exclusive or predominant use of the French language or of a regional language in use in France is maintained, but its impact has been substantially reduced for theatrical films.

Are now eligible for the tax credit, regardless of the shooting language:

  • theatrical animated feature films,
  • theatrical fiction films with special effects representing a minimum of 15% of the shots, or an average of 1.5 plan per minute (such works are treated as animated films[6]) and, as before,
  • audiovisual fiction films and series produced as part of international co-productions for a minimum budget of €35,000 per minute, out of which 30% at least is covered by foreign funds, provided only that an additional French language version is delivered.

Apart from these exceptions, it remains possible to make films in a foreign language that would be justified by script related reasons, but in this case the choice of language will affect the rate of the tax credit, as we will see below.

To qualify the work must also: be admitted to receive the automatic subsidy for theatrical or audiovisual productions, as the case may be; contribute to the development and diversity of the French and European creation, and be mainly produced in France (except when otherwise allowed for artistic reasons). The work is considered to fulfill the last condition if, as a result of its artistic and technical characteristics, it totals at least half the points on the automatic subsidy scale corresponding to its genre (fiction, documentary, 2D animation or 3D animation) as described in sections 211-9 and following of the general regulations of the CNC aids[7]. Implicitly, the work must also comply with the minimum proportion of artistic and technical elements specified by the Decree of 21 May 1992 for “European works” in order to qualify for the automatic subsidy.

In addition, audiovisual works must meet various requirements in terms of length (45 minutes for fiction programs, 24 minutes for documentaries and animated films) and production costs. Audiovisual documentaries must also incur eligible expenditure of at least €2,000 per minute produced.

  • Who receives the tax credit? 

Both in the case of French productions and international co-productions with France, domestic tax credit benefits the film production company(ies) subjected to corporate tax in France[8]. A film production company is the one that takes the initiative and the financial, technical and artistic responsibility for the production of the film and guarantees its completion. In France, this quality may be awarded to maximum 2 companies acting jointly for any given work.

The film production company may only receive the tax credit if it observes the French labor laws. The main risk here consists of the sometimes very questionable recourse by producers in the cinema and audiovisual sectors to fixed-term contracts (“contrats à durée déterminée d’usage”) to fill permanent positions. If any such contract is qualified in court as a permanent contract, the producer can lose the benefit of the tax credit previously acquired for one, or possibly more than one, films.

  • For which expenses?

The credit is calculated based on the following expenses incurred in France for the creation and production of the film:

  • remunerations paid to the authors and, for the part equal to the minimum wages provided in the applicable collective bargaining agreements, those paid to principal and non-principal artists,
  • salaries paid to the staff involved in the creation and production of the film,
  • statutory social charges associated to the above.

Note that are only eligible the remunerations, salaries and charges benefiting French nationals or residents and European nationals and alike[9]. On the other hand it should be noted that, for a theatrical film to receive the automatic subsidy (and subsequently the national tax credit), the net remuneration payable to authors, principal artists and producers (individuals) on production start is capped to an amount depending on the film budget. This measure dating from 2015 is the result of a media scandal denouncing the sometimes-excessive remunerations received by several stars for film that have failed to break even. It is intended to encourage to greater extent profit participation deals.

  • expenses related to the use of technical industries and other creative services for film and audiovisual productions,
  • expenditures on travel and catering and limited accommodation expenses,
  • depreciation expenses, and
  • for audiovisual documentaries only, the costs of licensing archive footage for a minimum of 4 years.

These expenses must be incurred directly by the film production company or by the production services company on its behalf, provided that they are invoiced on a cost basis.

The cost of internal resources allocated to the film (e.g. salaries of permanent technicians) can be sometimes considered as eligible expenses.

In any event, only the expenses incurred after the date of receipt by the CNC President of the application for provisional approval mentioned below are eligible, as well as, exceptionally, the advances against royalties that the production company may have paid the authors before such date, but during the same fiscal year.

For the purpose of calculating the tax credit, the (pro rated) amount of the non-refundable public aids received for the film and directly affected to the eligible expenses is deducted from the eligible expenses.

  • How much can be obtained?

The amount of the tax credit is determined by multiplying the base of eligible expenses (up to 80% of the total production budget or of the French producer’s share) by the credit rate, which varies depending of the genre and the main language of the film, whatever its budget:

  • For theatrical films, the rate is equal to 30% of the aggregated eligible expenses for animated films (and alike fictions), whatever the main language, as well as for documentaries and fiction films made principally or exclusively in French language or in a regional language in use in France, and 20% of the aggregated eligible expenses for the rest.
  • For audiovisual works, it is equal to 25% of the aggregated eligible expenses for fiction and animated films and 20% for documentaries.

This amount is limited to a fixed cap per film, which is as of January 2016 as high as 30 million euros (against 4 million euros previously). For audiovisual works, the cap is expressed as an average sum per minute produced and delivered (1,150 euros for documentary works, 3,000 euros for animated films, and from 1,250 to 4,000 euros for fiction).

Finally, a further limitation comes from the maximum cumulative intensity aid that can be granted to a cinematographic or audiovisual work throughout the EU, which is 50% of the production budget. Whenever the aggregated tax credits and public aids awarded to a film exceed this cap, the CNC decreases accordingly the automatic subsidy granted to the film.

  • When should one claim, obtains, and may use the tax credit?

To receive the tax credit, the film production company must first submit, before the start of principal photography, an application for provisional approval of the film to the President of the CNC mentioning the title of the film, the names of the authors and the estimated start date for the shooting. The application must include a preliminary application file including the authors’ contracts, an estimative budget and a provisional financing plan. If the project, as described, meets the applicable requirements, the provisional approval is issued within 6 months of receipt of the request.

The tax credit will only be granted if a second, final approval (based on the final film elements and costs), is issued by the president of the CNC within eight months following the issuance of the screening visa for theatrical films or within eight months of completion of the audiovisual film, as the case may be.

The tax credit is set off against the corporate tax due by the film production company for the year(s) during which the eligible expenses were incurred.

Although the actual deduction occurs on the date when corporate tax is normally due, thanks to the provisional approval the producer can assign in anticipation to a financial institution the surplus of tax credit that it expects to obtain. In this case, if the final tax credit amount exceeds the producer’s tax liability, the tax authorities will pay the surplus directly to the financial institution. If there has been no assignment, the surplus will be returned to the producer.

Contrariwise, if the film does not receive the provisional approval or the final approval for the tax credit within the timeframes mentioned above, or if the film is not completed (i.e. the theatrical film does not obtain the screening visa or the audiovisual work is not approved as “ready to broadcast”) within two years after the closing of the financial year for which the tax credit was obtained, the executive producer must repay the undue tax credit (including any surplus). Similarly, if the final tax credit rate is lower than the one estimated at the date of the provisional approval, the producer will need to repay the credit received in error.

  • Quick comparison with other European countries:

The following table shows the key figures in France and three other European countries.

Because of the substantial differences from one tax incentive scheme to another, these figures should be weighted according to each project.

For example, some countries reserve the benefit of the tax credit to film production companies majority-owned by European capitals, others make it available for production service companies and / or for non-European capitals. In some countries the basis for calculating the tax credit is larger than in others, either because of the larger variety of the eligible expenses, the nationality or the level of remuneration of the beneficiaries, or the absence of deductions of public subsidies.

National tax credit for theatrical films France Germany United Kingdom Ireland
Maximum credit rate 30% 20% 25% 32%
Maximum aggregated credit per production 30M€ €4M, exceptionally up to €10M no limit €16M (€22.4M as of 2016 subject to EU approval)
Maximum cumulative aid intensity level

 

50% of the production budget;

60% for difficult films (director’s 1st and 2nd feature);

60% for low budget films (budgets up to €1.25M)

50% of the production budget;

80% for difficult films (experimental or commercially risky);

80% for low budget films (budgets determined on an annual basis);

50% of the production budget;

difficult films excepted;

low budget films excepted;

50% of the production budget; difficult films excepted (high quality films with very low potential of financing and commercial exploitation) ;

low budget films (<€3M) excepted;

Minimum of aggregated expenses incurred in the country 25% of the production budget (budgets up to €20M);

20% of the production budget (budgets above €20M);

€15M or more for budgets above €75M

10% of the production budget €125K (the minimum production budget admitted is €250K)
Maximum eligible expenses 80% of the production budget (or of the French share) 80% of the production budget

(the German share needs to be at least 20% of the budget or €5M)

80% of the production budget the lower of 80% of the production budget or

€50M (€70M as of 2016 subject to EU approval)

Eligibility of non-European capitals No Yes Yes Yes
National tax credit for audiovisual works France Germany United Kingdom Ireland
Maximum credit rate 25% No tax credit for audiovisual productions 25% 32%
Maximum aggregated credit per production Cap per minute produced Unlimited €16M (€22.4M as of 2016 subject to EU approval)
Maximum cumulative aid intensity level 50% of the production budget;

60% for difficult works (innovative, little accessible or with a sensitive subject);

60% for low budget works (up to €100K per hour)

50% of the production budget;

derogation possible for difficult films;

derogation possible for low budget films;

50% of the production budget; derogation possible for difficult films (high quality films with very low potential of financing and commercial exploitation);

derogation possible for low budget films (<€3M)

Minimum of aggregated expenses incurred in the country For documentaries, minimum €2,000 per minute produced. 10% of the production budget €125K (the minimum production budget admitted is €250K)
Maximum eligible expenses 80% of the production budget (or of the French share) 80% of the production budget the lower of 80% of the production budget or

€50M (€70M as of 2016 subject to EU approval)

Eligibility of non-European capitals No Yes Yes
  1. The international tax credit (TRIP)

This mechanism aims to attract shootings in France for theatrical and audiovisual productions initiated abroad in order to monetize local know-how and resources.

It should be noted that the system remains accessible to French producers as they have the opportunity, when involved in international co-productions, to choose between the two systems: they are eligible for the TRIP whenever they undertake the role of production services provider and waive the benefit of the national tax credit and automatic subsidy reserved to film producers.

With a substantial increase of 10% in the rate and 10 million euros in the cap value, the revised TRIP places France in a privileged position in the European rankings.

  • What works qualify?

Theatrical films and audiovisual works of fiction and animation (excluding films which can be used for advertising and content which is pornographic or incites to violence) produced by companies established abroad and made exclusively or partially in France, subject to certain conditions.

First, the works must be connected with the French culture, heritage or territory. To validate this requirement a points scale is used to reward elements such as the number of shooting days in France or the technical services purchased in France, but also the French, French-speaking or European dramatic content (film locations, subject, story, characters), or the authors and collaborators being citizens of France or of other European countries. There are two different scales, one for fiction and one for animation (also used for works of fiction in which special effects represent 15% or more of the shots).

Second, the works are not to be admitted to any of the automatic or selective subsidies for film production awarded by the CNC (which excludes official co-productions with France). Production service companies may however receive other types of grants, such as regional aids.

Works benefiting from the TRIP must include a specific mention in their credits.

  • Who receives the tax credit?

The TRIP for the foreign-initiated production benefits the production services company who is subject to corporate tax in France.  The production services company (PSC) is the one that supplies the technical and artistic means for the creation of the theatrical or audiovisual production, manages the manufacturing operations and makes sure that they are properly performed. It can be either an independently established production services company, a special purpose vehicle, or the French subsidiary of a foreign production company.  To receive the tax credit, the PSC must comply with the French labor laws (same remarks as for the domestic tax credit).

  • For which expenses?

It should be first noted that a minimum of 1 million euro spend in France is required (or 50% of the total production budget for works produced for less than 2 million euros). In addition, fictions need to shoot a minimum of 5 days in France.

Tax credit is calculated on the basis of expenditure in the following categories, corresponding to operations or services carried out in France by the PSC, up to a maximum of 80% of the production budget:

  • the advances against royalties paid to the authors and, for the part equal to the minimum wages provided in the applicable collective bargaining agreements, the remunerations paid to principal and non-principal artists,
  • salaries paid to the staff involved in the creation and production of the film (including the PSC’s permanent staff, for the part of their work allocated to the production of the film),
  • statutory social charges associated to the above.

Note that are only eligible the remunerations, salaries and charges benefiting French nationals or residents and European nationals and alike[10].

  • expenses related to the use of technical industries and other creative services for film and audiovisual productions,
  • expenditures on travel and catering and limited accommodation expenses, and
  • depreciation expenses.

Only the expenses incurred after the date of receipt by the CNC President of the application for provisional approval mentioned below are eligible, as well as, exceptionally, the advances against royalties that the production company may have paid the authors before such date, but during the same fiscal year.

For the purpose of calculating the tax credit, the amount of the refundable and non-refundable public aids and subsidies received for the film is deducted from the eligible expenses. The deduction should logically be operated on a prorated basis, according to the illustration provided in the official fiscal guidelines for the domestic tax credit. The current fiscal guideline for TRIP features a distinct illustration which in our view is incorrect as it makes a confusion between the calculation basis for the tax credit, which is the sum of eligible expenses and, and the aggregate film production cost that should only be taken into account to calculate the 80% cap previously mentioned.

  • How much can be obtained?

As of January 2016, international tax credit is 30% of the above mentioned expenses, up to a maximum aggregated credit of €30 million per film (against € 20 million previously).

Its grant must not have the effect of exceeding the maximum cumulative intensity aid that can be granted to a cinematographic or audiovisual work throughout the EU, which is 50% of the production budget.

  • When should one claim, obtains, and may use the TRIP?

The application process is similar to the one described above for the domestic tax credit and involves the issuance by the president of the CNC of a two-step approval.

The application for provisional approval includes a number of documents, among which a provisional budget detailing the expenses contemplated to be incurred in France and the contract or deal memo entered by the PSC with the foreign production company. If the project, as described, meets the applicable requirements, the provisional approval is issued after analysis by Film France.

The tax credit will be granted only if a second, final approval (based on the final film elements and costs and subject to the certification of accounts by an auditor), is issued by the president of the CNC within twenty-four months following the date of the last works performed in France.

The tax credit is set off against the corporate tax due by the PSC for the year(s) during which the eligible expenses were incurred.

Although the actual offset occurs on the date when corporate tax is normally due, thanks to the provisional approval the PSC can assign in anticipation to a financial institution the surplus of tax credit that it expects to obtain. In this case, if the final tax credit amount exceeds the producer’s tax liability, the tax authorities will pay the surplus directly to the financial institution. If there has been no assignment, the surplus will be returned to the producer.

Contrariwise, if the film does not receive the final approval for the tax credit within the 24-month period mentioned above, the PSC will need to repay the undue credit (including any surplus) received in error.

  • Quick comparison with other European countries:

The following table shows the key figures of the French international tax credit compared to the same foreign mechanisms mentioned above in the national tax credit section (and which, although not specifically designed for foreign productions, are compatible).

In this case too, the figures should be weighted according to each project because of the differences from one tax incentive scheme to another (such as the eligibility prerequisites for expenses – e.g. the nationality of the beneficiaries, their maximum compensation levels, the deduction of public subsidies received for the production, etc.).

TRIP  (theatrical and audiovisual) France Germany

(theatrical only)

United Kingdom Ireland
Maximum credit rate 30% 20% 25% 32%
Maximum aggregated credit per production €30M €4M, exceptionally up to €10M No limit €16M (€22.4M as of 2016 subject to EU approval)
Maximum cumulative aid intensity level 50% of the production budget; 50% of the production budget; 50% of the production budget; 50% of the production budget;
Minimum of aggregated expenses incurred in the country €1M (50% of the production budget if under €2M) 25% of the production budget (budgets up to €20M);

20% of the production budget (budget above €20M);

€15M or more for budgets above €75M

10% of the production budget; €125K (the minimum production budget admitted is €250K)
Maximum eligible expenses 80% of the production budget; 80% of the production budget

(the German share needs to be at least 20% of the budget or €5M)

80% of the production budget; the lower of 80% of the production budget or

€50M (€70M as of 2016 subject to EU approval)

Eligibility of non-European capitals Yes Yes Yes Yes

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This entry contains general information, valid as of its publishing date, non-exhaustive and cannot replace personalized legal advice. If you would like to receive a legal assessment and advice for your project, please contact us by following this link.

[1] First created for cinema by the budget law for 2004 and subsequently expanded to television the following year; the term « national » needs to be considered broadly – see footnote n°8 below.

[2] Created by the budget law for the year 2009

[3] Centre National du Cinéma et de l’Image Animée

[4] Étude comparative des crédits d’impôts en Europe et au Canada (in French): http://www.cnc.fr/web/fr/publications/-/ressources/5761847

[5] http://variety.com/2016/film/global/2016-forecast-record-year-foreign-shoots-france-1201693987/

[6] It is the example of EuropaCorp’s « Valerian » project, with a budget worth $180M, produced in English language; one of the important challenges of the 2016 reform was to keep its shooting in France.

[7] This scale is only mentioned in the section of the general regulations specifically dealing with theatrical films, however the general terms of section D331-5 of the Cinema Code imply that the same scale would apply mutatis mutandis to audiovisual works.

[8] Additional restrictions relating to the producer’s registered office (in France or in another European Union member state or EEA Agreement contracting party), the nationality of its general managers, directors and controling companies, and, for theatrical film producers, the minimum share capital, apply in order for the former to access the automatic subsidy.

[9] Are namely concerned the citizens of EU and EEA Member States, of contracting parties to the Council of Europe’s European Convention on Transfrontier Television and European Convention on Cinematographic Co-Production respectively, as well as third party states having entered into agreements relating to the audiovisual sector with the EU (including 15 Caribbean states).

[10] Are namely concerned the citizens of EU and EEA Member States, of contracting parties to the Council of Europe’s European Convention on Cinematographic Co-Production, as well as third party states having entered into agreements relating to the audiovisual sector with the EU (including 15 Caribbean states).