Pressure to help UK film industry

THE Government is under pressure to help the ailing British film production business by closing a tax loophole that allows US films companies to pay almost no tax in this country.

The problem is emphasised by films such as Jurassic Park, the Spielberg epic expected to earn many millions of pounds in the UK this summer. Virtually all the earnings are likely to be remitted to the US.

Between 1988 and 1992, the UK revenues of the six largest US studios were about pounds 1.3bn. But by offsetting the costs of making their films in the US, they declared profits in the UK of only pounds 43m, and paid tax in Britain of only about pounds 15m.

At the same time, the British film industry's plight was highlighted last week when Brent Walker announced the closure of Elstree, one of the country's oldest film studios.

The Department of National Heritage is preparing a White Paper to be published later this year. But any change will require the agreement of the Treasury as well as the co-operation of the Department of Trade and Industry.

At the moment 85 per cent of all box-office takings come from US films, and another 10 per cent from films that are only nominally British, because they are financed by foreign companies. US studios, however, normally pay about 1.33 per cent tax on profits and royalties.

Michael Henry, of Nicholson Graham and Jones, the entertainment solicitors, notes that the tax avoidance is due to a loophole opened in 1927 that exempts film companies from the withholding tax on royalties normally imposed on patents, copyrights and other intangibles.

Until the mid-1980s the production industry was compensated by a levy on box-office receipts and by capital allowances that encouraged US companies to produce here. The damage caused by the abolition of both measures by the Thatcher government was compounded by introduction of a 'withholding tax' on film stars making a film here.