Porchlight Films has argued it would have been difficult to make ‘Lore’, a co-production between Australia, the UK and Germany, under the proposed changes. (Photo: The Moviestore Collection Ltd)  

The Federal Government’s proposed changes to the Producer Offset’s ‘Gallipoli’ clause would effectively limit the ability for Australian productions shooting offshore to use non-resident Australian actors, directors and crew, and therefore opportunities to raise international finance, industry bodies have argued.

Treasury Laws Amendment (Tax Integrity and Other Measures No. 2) Bill 2018, currently before the Senate, includes an amendment to the Income Tax Assessment Act 1997 that seeks to limit what can be claimed as qualifying Australian production expenditure (QAPE) under the film Producer Offset – specifically, altering what is commonly known as the ‘Gallipoli’ clause.

Where an Australian production requires a foreign location shoot, certain types of expenditure can be claimed as QAPE; the clause takes its name from an example in the legislation’s initial explanatory memorandum which acknowledges a film about Australia’s involvement in Gallipoli would need to shoot in Turkey.

At present, the ‘Gallipoli’ clause allows production companies to claim expenditure on offshore goods and services as QAPE – including services of cast and crew who are not Australian residents for tax purposes – so long as the company/permanent establishment providing them has an ABN.

The current bill proposes an additional Australian residency requirement on individuals that perform such services, which would then be applied retroactively to all films that commenced principal photography after July 1 2017.

The government has said the objective of the amendment is to “ensure that the producer offset is better targeted at supporting the Australian film industry when an offshore location is used”, and estimates the measure would save $6 million by 2020-21.

In submissions to a Senate inquiry into the bill, both Screen Producers Australia (SPA) and the Media Entertainment and Arts Alliance (MEAA) criticised a lack of industry consultation with regards to the proposal, and the need for such a change in the first place.

They argued that many Australian actors who would be capable of raising international finance for Australian productions are non-residents who live in the US or the UK, and that under the proposed changes, their wages would not be eligible for QAPE for the period of a shoot which takes place overseas.

In its submission, SPA said: “The effect of this Bill would be to reduce Australia’s competitiveness in the global market for finance, talent and audience. These three market forces are linked: talent attracts finance, which goes into producing high-quality Australian content that attracts audiences locally and internationally. Any restrictions on access to production talent (directors, actors and crew), affects access to finance. The proposed Bill creates a disincentive to include foreign locations in Australian productions, thereby limiting international sales and audiences.

“Unfortunately, the Australian screen industry is not of sufficient size to retain many of our best actors, writers, directors and crew working consistently in Australia. The proposed Bill will further diminish producers’ capacity to attract Australian talent of international renown back home to work.”

MEAA said: “Treasury’s views defy the modern reality of the mobility of international film and television resources. Australian citizens who no longer qualify as Australian residents is an increasingly active cohort within Australian film and TV production.

“The level at which these Australians perform their craft means that they often pursue more sustainable and profitable work opportunities outside of Australia. A consequence of this is the loss of Australian residency status; but this does not displace their commitment to the Australian film and television industry and it should in no circumstance equate to them facing new obstacles to the develop our sector.”

Porchlight Films’ submission noted that many of Australia’s biggest stars currently reside overseas, and that the drain of talent to other English-language film sectors was already a problem for production companies.

“The ability to attract top tier talent is absolutely essential in financing premium projects. Whilst our budget level cannot compete with the budgets available in the US and UK, through the mix of government investment and tax rebates we can pull together projects that have the potential to compete internationally. The ability to claim expenditure on non-resident Australian citizens as qualifying Australian production expenditure (QAPE) is, and should remain, a pillar of the film producer offset legislation as the entire health of our industry depends on this. In eroding this pillar, Australia risks becoming a mere training ground that feeds the larger US and British industries but is unable to benefit from the talent of our own citizens,” it said.

Both Porchlight and SPA noted it was unclear from the proposed amendment what impact there would be on international co-productions – to which the Gallipoli clause currently applies.

Porchlight’s submission said: “Porchlight has been involved in several co-productions where Australian talent is essential to the financing structure and it would be ludicrous to rely on non-resident Australian talent to achieve the requisite points for a co-production but not be able to count the payment to that talent as qualifying Australian expenditure. Co-productions, such as our films Lore and Dead Europe would be difficult to produce under these changes. Attracting highly skilled and talented Australian citizens to these projects is often the key [to] them happening at all.”

In its submission, Matchbox Pictures said after “reading and re-reading” it was still unsure of “what evil” the amendment was meant to address. “We must not be penalised for attracting international talent to our productions. We find a proposal to that effect staggeringly out of touch with industry trends and the well-publicised internationalisation of film and television.”

Many of the submissions also argued that the retrospective application of the proposal to July 1 2017 could interfere with contracts on projects currently in production.

The Senate committee who conducted the inquiry into the bill has recommended that it be passed, however Labor Senators have said the it should be amended to remove the retrospective application, and that the government consider a post-implementation review to evaluate the impact of the change.

In a statement, Screen Australia said: “The purpose of the proposed amendment to the ‘Gallipoli clause’ is to confirm the function of the Producer Offset in relation to overseas expenditure. Spend on foreign resident cast and crew, incurred during an overseas shoot, is not eligible to be claimed against the Producer Offset. There is no change as to how Screen Australia administers this clause, including for Official Co-productions.”

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