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Including the film industry among the eligible sectors for state aid could generate a growth of up to almost 250 million Euro for the sector, according to a PwC study

Date: 07/18/2016
Source: PwC
Applying the state aid schemes to the film industry could drive a fivefold increase in the movie production in Romania, up to a value of around 250 million Euro annually, as well as to the creation of 4,000 new jobs in the creative industries and related ones, as shown by a PwC Romania study.

Also, the indirect multiplying effect induced in the economy could reach up to around 850-974 million Euro annually, through intensified activity in the tourism, transport and service sectors.

In addition, the budgetary impact of such a scheme would be a positive one, generating revenues of 120-130 million Euro annually for the state budget.

“At the moment, 20 state members of the European Union are applying financial support schemes for the film industry and the results of implementing such schemes had been quite spectacular in countries such as Czech Republic or Croatia, which have drawn in many foreign movie productions. As a matter of fact, the scheme proved to be so successful in the Czech Republic that nowadays authorities in Prague take into consideration increasing subsidies from 20% to 25% of eligible costs of an international film produced in the Czech Republic”, said Mihaela Mitroi, PwC Partner, Tax and Legal Services Leader, Romania, Moldova and SEE.

“Romania has indisputable strengths in this sector (very talented film-makers, extremely diverse and appealing shooting locations etc., the positive imagine that Romanian cinema enjoys abroad as a result of the movies awarded in the last years), but without financial and tax instruments to support and attract international movie productions, all this potential remains untapped” added Mihaela Mitroi.

Member states of the European Union with important movie productions such as Great Britain (since 2006), France (2008), Germany (2007) and others, especially from Central and Eastern Europe such as Hungary (2003), Czech Republic (2010), Poland (2007), Croatia (2012) have set up during the years state aid schemes for movie production, managing to draw in foreign direct investments in this industrial and cultural field of activity. The ways in which the state aid is granted are diverse, based on fee and tax reduction or exemption but also direct subsidies. One condition for investors to benefit from fiscal incentives is that a minimal part of the movie production to be made within the country that grants the tax incentive.

The Czech Republic grants subsidies and tax incentives up to 20% of the local costs, having an average annual budget of 45 million Euro during 2015-2018. Hungary grants subsidies and tax incentives of 25% of the local costs with an average annual budget of 38.5 million Euro (231 million during 2008-2013). In Poland granted subsidies and tax incentives account for 50% of the budget, but no more than 1 million Euro, with an average annual budget of 30 million Euro. Croatia has implemented in 2012 a state aid scheme through which it grants subsidies of 20% of eligible costs but no more than 2.65 million Euro for a movie.

The increase of movie production after implementing the state aid schemes has been remarkable: Hungary has registered 133 million EUR after having implemented the scheme in 2003, which lead to an industry growth by 500% in absolute value. The Czech Republic, which cashed in 100 million Euro after implementing the state aid scheme in 2010, registered a 300% increase in movie productions compared to the period before the introduction of the incentives. Poland gained more than 134 million Euro after implementing the state aid scheme for the movie industry in 2007. In Poland, there are also 9 regional state aid schemes. The film industry registered a compounded annual growth rhytm of 63% in the Czech Republic, 50% in Hungary and 13% in Poland.

PwC Romania has proposed the application of a state aid scheme for the film industry in Romania, similar to that of other states in Central and Eastern Europe. This scheme would be implemented for a period of five years, with an average annual budget value of 30 million Euro. This could reimburse 25% of the total eligible costs of an international movie production made in Romania and 50% of the income tax paid in Romania by eligible non-residents individuals.

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