Credit Where It’s Due: Why European Nations Are Doing Battle Over Tax Incentives

As buyers wander the vast halls of the Palais in Cannes this week taking meetings and exploring the next generation of TV shows, they will no doubt be wowed by some supremely premium content.

But there is no escaping the fact that, in 2024, financing a show is harder than ever. Reaching greenlight has been transformed into an ever-more complicated jigsaw. A nasty combination of the global recession, streamer cutbacks, rising costs and heightened competition has led to a situation whereby crossing the 100% investment line can feel like threading a camel through the eye of a needle. The concept of a soft greenlight, a show that is all but there yet needs that final 10-20% investment, has entered common parlance.

Step forward the humble tax credit. Where once long ago, buyers could comfortably afford full tariffs, and once slightly more recently, deep-pocketed U.S. players would swoop in and complete the financing, today’s TV packages are super-complex patchwork quilts, which more often than ever require a hefty chunk of cash from a rebate.

“From 2022 onwards there has been this fairly dramatic change of paradigm where U.S. platforms have been reducing the volume of productions and PSBs are not willing or able to give more money to projects,” says Fabrice Deville, who runs Beside Tax Shelter, an outfit that collects money on behalf of the thriving Belgian system. “They need quality but have at best stable revenue, so in essence they have the same amount of money in a market that has seen a 10-20% increase [in costs] due to inflation. That’s where tax credits come in.”

Deadline has spoken to around 10 in-the-know execs for this feature — both on and off-record — and while all note that tax incentives have been crucial for years, they concur that rebates are now almost impossible to live without. Furthermore, the volume of shows relocating production to take advantage of a juicier credit has risen rapidly, they say.

Film and TV tax credits have been in operation in some form for decades and started expanding around 20 years ago as the industry globalized. Since then, the vast majority of European nations — and many others around the world from Australia to Saudi Arabia — have introduced these systems, some sweetening them over the years.

Barely a sentence can be uttered about the thriving U.K. entertainment sector, for example, without mention of the film and high-end TV tax credit, widely seen as the growth spark for a now-circa-£6 billion ($7.8 billion) industry that attracts productions from all over the world.

“We have seen the impact of [tax credits] on hit series and movies on regions — whether it is Game of Thrones in Belfast or Bridgerton, which was recently quoted as contributing £275 million to the U.K. economy,” says Lyndsay Duthie, who runs the Production Guild of Great Britain. “The infrastructure, hotel bookings, transport and eateries all benefit from a large production coming to town.”

Yet once the envy of Europe, there is at present a hefty lobby pushing to have the U.K.’s circa-25% rebate upped towards the 30-40% region, which neatly demonstrates the heightened competition, according to a U.K. legal source who works across tax credits.

Shifting Sands

As is often the case, it is the shifting American landscape that has been a catalyst for change. With credits, that impact has been two-fold. American buyers are no longer splashing out the blank-check-era sums of yesteryear, and it is becoming harder to shoot shows in the States, with Uncle Sam’s domestic tax credit systems failing to compete favorably with smaller nations.

“The Californian industry is among those struggling the most and that is supposed to be the epicentre,” says one American indie boss, who makes shows all over the world. “Tax credits are so important. They are the reason why so many American shows and American companies are interested in shooting abroad. They just cannot afford to shoot in the States.”

Many productions have relocated to countries with favorable credits of late, such as Netflix’s Wednesday, which shifted its second season to the attractive filming location of Ireland. Streamer obligations in the EU, meanwhile, have forced the SVODs to concentrate more spend locally. “Streamers are under pressure from shareholders not to spend money without thinking, and so tax credits help,” says Deville.

With those controlling the purse strings evaluating how to get shows made as economically as possible, producers have to be “ruthless about what makes sense for the pipeline,” adds Jamie Lynn, EVP Co-Production and Distribution at Fremantle.

“At the eleventh hour, you might have to go to a less desirable location [for a better credit],” he adds. “We’re dealing with it all the time.”

Safe Haven

“Not every tax credit is equal to your neighbor’s tax credit,” Deville muses, and the realities of the financial landscape have in recent years led to a bunfight between territories, which are competing to have the best credits, system and ability to handle projects of scale.

“You need to get that net cost down by maximizing incentives without burning too much money along the way,” says Philipp Kreuzer, the boss of Maze Pictures, who has helped with production services on the likes of Hulu’s Nine Perfect Strangers. “But there is a balance. If you do a show for a U.S. studio, you have to remember you get nothing in terms of rights.”

A common claim is that tax rebates turn nations into production services hubs, which Marc Lorber, a former Lionsgate acquisitions exec who is now a consultant, says creates a “bubble in the economy.” This, he adds, can have negative impacts on below-the-line crew if too many are brought in from abroad or local production becomes unsustainable.

Credits can range from the 20% mark to a whopping 50% in places like the Canary Islands. But while the Canaries weather is always set fare, infrastructure can sometimes struggle to keep up with demand. This could also be true for the rebate hubs of Cyprus and Hungary, which have become popular through the years.

And then there there are issus such as of qualifying spend, how much of a production needs to be completed in a given territory to earn its rebate, and the speed at which a government pays out.

On the latter, Deville says Belgium’s tax credit system is preferable because the government bankrolls before the cameras roll, guaranteeing funds for buyers and producers desperate to avert cashflow problems. “If two countries have comparable crews but you get your money back quicker in one, well that can make a big difference,” says Fremantle’s Lynn.

Deville’s Belgian outfit Beside Tax Shelter/Beside Productions has an intriguing model. The company collects around €25 million ($27.6 million) per year in a €200 million market, while also offering local co-production services that allow foreign producers to take advantage of Beside’s knowledge of the local sector and ability to access other regional funds.

Deville has had a front row seat as Belgium has transformed from mostly taking on French projects — before France itself introduced a rebate — to becoming a center for projects from all over the world. Shows Deville’s team has recently worked on include Frank Doelger’s The Swarm and Beta Film’s Herrhausen – The Banker and The Bomb. The latter switched location from South Africa to Belgium at the last minute and Deville says his team “sees it as a tour de force, a super fun challenge to say, ‘OK this show will be on German public TV, how do we make it in Belgium?’.”

But while Belgium stays strong and stable with its credit system, some nations can flip-flop on their tax rebates, and if there is one thing producers don’t like it is uncertainty.

This could be seen none more so than in Poland and Italy over the past year.

With the entertainment industry flatlining due to a rapid change of government, which included devolving the propaganda-infected public broadcaster, credit money suddenly dried up in Poland, and with it local and international productions. The credit returned soon after, a drama source from the industry tells us, but the fluctuations have done damage.

In Italy, Giorgia Meloni’s right-wing regime immediately started questioning whether the credit had been too wasteful and said it would be reformed, which gave a fright to international and local producers seeking consistency in a nation that had just showed itself off to the world via HBO’s The White Lotus.

Productions were pulled or paused and only recently have banks started paying out again for a newly reformed credit, which places more emphasis on local Italian crew and cast while introducing a cap on international co-productions.

Neatly illustrating how credits can cause ructions, an experienced producer from the Italian industry describes the initial introduction of the credit more than a decade ago as “a little industrial revolution.” But soon, this had “created a bubble, a moment of pure madness where costs had gone up so much that it became hard to produce in Italy on a budget that made sense,” he says.

While Italy steers a course for a more stable credit, it is the Mediterranean hub of Malta that has perhaps proved to be the most controversial since expanding its 40% rebate last year.

Malta has become a haven because of its dreamy year-round climate and generous rebate but there has been a backlash led by the opposition party due to the impact on local industry and cost to the taxpayer. This has come to a head with Ridley Scott’s Gladiator II, which a recent Times of Malta investigation found will secure a monumental €47M of the overall €143M paid out by the government over the past five years. The idea of Hollywood execs lining their pockets with Maltese taxpayers’ hard-earned cash has rattled cages, although the government says the Maltese economy gains €3 for every €1 spent in cash rebates for film productions.

“Sometimes I see some examples of support where I think to myself that if I was a citizen of that country, I would wonder whether this is a good thing,” says a well-connected production source. Screen Malta declined to comment for this article.

An American co-pro exec, who handles credits, says “moral questions” can also dominate conversation when it comes to thinking about moving shoots to places like Saudi Arabia, which offer generous incentives.

“Banks can be hesitant to loan, and some actors or directors have the power to say, ‘I know what we’re getting there but I don’t want to go,” he adds. “You have to appreciate that some people won’t go to [places like] Saudi Arabia for moral reasons.”

Yet there is no doubt that producers are getting more desperate to utilize rebates, and regional funds along with the likes of European Cinema Support Fund grants have become like gold dust. More frequent now is the practice of “double dipping,” by which producers look to maximize two different credits on one production, according to the U.K. legal source, often producing the show in one location and completing VFX in another.

“Studios are very, very savvy about this,” adds the source. “Indies less so. They tend to go where the script takes them, but if they need to be in a hot country that looks like a seaside resort, they will probably film in Malta.”

To balance out the bunfight, Lorber advocates for “graduated” systems, whereby bigger budget projects are handed a smaller proportional amount than the lower-budget indie fare more in need of rescuing.

Lorber’s idea has yet to be taken up. In the meantime, the sky appears to be the limit for the humble tax credit.