EU member states now enjoy greater leeway when launching certain support schemes aimed at the film industry. The good news is that they can do this without the risk of falling foul of EU State Aid rules.

The European Commission acts as a watchdog over all aid given by the various EU member states to different sectors. The purpose of such control is to ensure that member states do not grant particular advantages to certain companies or sectors to the detriment of others and hence hinder competition in any one sector. Nonetheless, the treaty on the functioning of the European Union recognises the specific nature of the cultural sector and makes provision for the possibility of granting state aid to promote culture and heritage conservation.

In 2001 the Commission adopted specific criteria to assess aid schemes put in place by member states in order to support films and other audio-visual works. These criteria have now been replaced by more modern ones which take into account the fact that the audio-visual sector has undergone import-ant changes over the years, particularly with the introduction of digital technology.

The previous rules applied only to production support. The scope of activities that may be supported by member states has now been extended to include all phases of an audio-visual work, from the concept to the delivery to audiences. The new rules also state explicitly that the definition of cultural activities remains primarily the responsibility of the member states. The scope of the rules has now also been extended to cover state aid to cinemas, which includes aid for the modernisation of cinemas, such as their digitisation. Furthermore, insofar as trans-media and cross-media projects are linked to the production of a film, their film production component is now considered to be an audio-visual work within the scope of the new rules.

The European Commission acts as a watchdog over all aid given by the various EU member states to different sectors

The new rules also clarify the position of post-production and principal photography, that is, the production phase when the movie is filmed. The principle is that aid must not be reserved for specific parts of the production value chain. The producer should be free to choose which items of the budget to spend outside the territory of the aid-granting member state. For example, a member state should not offer producers extra incentives explicitly aimed at attracting post-production work to that member state. The aid should be for production activities as a whole.

As with the previous rules, the aid to audio-visual production continues to be limited in principle to 50 per cent of the production budget. For co-productions funded by more than one member state, the new rules extend this ceiling to a maximum of 60 per cent of the production budget.

The costs of the distribution and promotion of audio-visual works may be supported with the same aid intensity. Difficult audio-visual works such as short films, films by first-time and second-time directors, documentaries, or low- budget or otherwise commercially difficult works are excluded from these limits.

Member states will still be allowed to impose territorial spending obligations on the beneficiaries of aid. A territorial spending oblig-ation can be any condition which restricts the beneficiary of aid in choosing where to spend the production budget. However, the Commission wants to ascertain that such territorial obligations remain proportional to the aid granted and has laid down specific criteria to ensure that this is the case.

The new rules also take into consideration tax incentives as a way of supporting audio-visual works. In such cases, the aid is awarded and defined as a proportion of the production expenditure in the granting member state. The new rules set the maximum expenditure that can be subjected to territorial spending obligations at 80 per cent of the production budget. In addition, member states may require a certain level of production activity of up to 50 per cent of the production budget in the territory as a condition for eligib-ility for state support.

Member states remain free to impose conditions on state-funded films which ensure their link to a national or local culture. For example, member states may require that a film is produced in a certain language, when it is necessary and adequate to pursue a cultural objective.

EU member states provide an estimated €3 billion per year in film support. On the other hand, the production and distribution of films and other audio-visual works contribute to the EU’s economy. Over one million people are employed in the EU’s audio-visual sector, which makes it one of the largest film producers in the world.

The filming industry in Malta is also gaining ground, leaving its own significant impact on Malta’s economy. With more leeway being given at EU level to member states when launching support schemes for this all-important sector, the ball is now in the field of each member state to ensure that the right support is given to this developing sector.

mariosa@vellacardona.com

Mariosa Vella Cardona M. Jur, LL.D., is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.

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