Everything you need to know about this funding mechanism that is essential for the development of a cultural industry in Belgium.
First inserted into the Income Tax Code 1992 (CIR92) in 2002, article 194b defining the legal principles of the Tax Shelter audiovisual mechanism is celebrating its 20th birthday!
Over the years, the wording of the legislation has undergone many adaptations. The most recent of these, dating from 15th July 2022, sets new limits on the “administrative” production expenses that can be financed by the Tax Shelter mechanism (see above). Since the major reforms of 2014, brought into being by the Act of 12th May 2014 and which came into force on 1st January 2015, the Tax Shelter has now reached its cruising speed, despite the turbulence created by the Covid-19 crisis. Each year, the mechanism enables almost €200 million to be raised from Belgian companies of all sizes, generating almost twice as much in taxed production expenditure in Belgium.
As a pioneer of the Tax Shelter from the outset and the preferred partner of investors, SCOPE Invest has participated in the financing of more than 250 films produced entirely or partly in Belgium. So, who better than SCOPE to remind us of the main operating principles of the Tax Shelter mechanism – a system that is sometimes still not fully understood by some businesses and accountancy professionals alike?
Last update on : 26.04.2023
The basic principle underlying the Tax Shelter is the ability for companies subject to corporation tax in Belgium to convert part of their tax liability into an investment that is used to finance an audiovisual production .
As you would expect, this generates a tax saving for the investor that is greater than the investment made. In fact, the tax yield from this first part of the operation is precisely 5.25% of the amount invested.
In practical terms, the amount invested in the Tax Shelter is multiplied by a coefficient that is linked to the standard tax rates. This coefficient is set by article 194b at 421% for any tax period where the standard rate of taxation is 25%.
Which means that for an investment of 100 in the Tax Shelter, the tax saving is 105.25.
Last update on : 26.04.2023
In addition to this fiscal component, the operation also is supplemented by a “financial” component. This because article 194b enables producers to reward investors by paying them a financial bonus.
This bonus is paid at the latest 18 months after the investor deposits the funds into the producer’s account. The maximum financial bonus that can be paid is reviewed every six months, based on the average 12-month Euribor rate for the previous six months. Currently, following the increase in this rate, made on 31st December 2022, the maximum additional return that can be paid to the investor is 10.25% gross (i.e. 7.69% net ).
This means that, in total, the overall net gain of the operation is 12.94% of the amount invested.
Last update on : 26.04.2023
The Tax Shelter is a fiscal mechanism that can be accessed by any company reporting a profit and wishing to reduce its tax bill. However, it is not possible for the mechanism to eliminate the company’s tax liability altogether. To make sure this is the case, the legislation sets a twofold limit:
• A maximum of €1,000,000 in profits may be exempted annually
• A maximum of 50% of the movement of taxed reserves during the financial year can be exempted in this way
In practical terms, the maximum amount that can be invested in the Tax Shelter each year is €237,529 (1,000,000 ÷ 421%). This, of course, only applies to the largest companies. The average Tax Shelter investment is around the €50,000 mark.
In return for this contribution, the producer is required to make expenditures that are taxed in Belgium.
As far as the Belgian State is concerned, this “tax gift” is granted both to investors (in the form of a tax reduction) and to producers (who find it an essential source of funding for financing for their projects). The return on investment is linked to this important consideration: every euro raised through the Tax Shelter must be justified by a production expense equivalent to €1.87, which is almost double the original amount.
To be eligible for the Tax Shelter, each item of expenditure is required to meet certain criteria, the main one of which is its “Belgian” nature. This means that a “Belgian” expense, within the sense of the Tax Shelter, is a production expense that is taxed in Belgium.
Last update on : 26.04.2023
The full amount of the sums raised via the Tax Shelter mechanism is allocated by the producer in charge of the funds to covering expenses specifically related to the work for which the funds have been raised.
Also, a film’s budget can only be partly financed by funds raised from the Tax Shelter mechanism. As such, the maximum contribution allowable via this system is set at 50%.
This figure also needs to be broken down into direct production-related expenditure (70%) and administrative (or indirect) expenditure, which is limited to 30%.
Last update on : 26.04.2023
To which actual activities or items are these amounts allocated? Expenditure of a “direct” nature that qualifies for the Tax Shelter relates to the creative and technical production of the eligible work. This expenditure includes, for example, costs covering artistic rights, salaries and allowances of staff or service providers, costs allocated to the payment of actors, musicians and other artistic functions, related social charges, expenditure on sets, costumes and props, logistics costs (transport, accommodation) and insurance, the cost of equipment, technical means and laboratory costs, expenses more generally linked to editing and promotional work, as well as the remuneration of the production manager, post-production co-ordinator and executive producer.
Representing a smaller share (maximum 30%), expenses that are not directly linked to production include the administrative and financial organisation of the audiovisual production, financial costs and commissions paid in the context of the recruitment of companies entering into a framework agreement, legal and representation costs inherent to the financing of the work and most of the invoices issued by the investor, as well as the distribution costs borne by the production company.
Last update on : 26.04.2023
So, what exactly is the procedure? SCOPE simplifies the administrative management and monitoring side of the system. The procedure itself is in four distinct phases. In the year of the exemption, the investor and the producer sign a framework agreement (J), which specifies the amount invested and the audiovisual work chosen. This agreement is sent to FPS Finance during the month in which the agreement is reached (J+1). The amount of the investment is then paid by the investor within three months of the framework agreement being signed (J+3), after which the investor can proceed with the provisional exemption of its taxable profit. Interest is paid at the time the tax certificate is submitted and no later than eighteen months after the date of payment (J+21). The provisional exemption becomes final when the tax certificate is issued by FPS Finance. This happens once the audit of the film’s expenses has been carried out and validated by the specialised unit in charge of this audit and the issuing of tax certificates.
Last update on : 26.04.2023
For legal entities that benefit from the reduced tax rate on the first €100,000 of profits, the Overall Gain over the duration of the Transaction may be negative, up to -10.26%.
The investor’s own particular circumstances should be discussed with their usual tax adviser prior to any decision is made to invest.
Last update on : 26.04.2023