Using the tax system to promote culture?
Avignon, France, Moscow, 23 November 2009 – At the Avignon Forum, which took place on the 21st of November, a two-day event bringing together the worlds of media, business and arts, Ernst & Young launched the first comparative tax study examining the fiscal measures and incentives used across 14 countries to stimulate cultural activities. The study also explores which types of activity governments tend to promote through taxation policies.
The study shows that there are significant differences as to how the 14 countries utilize the tax system as both an opportunity to raise money and as a chance to incentivize cultural activities. Each of the 14 countries employ incentives (tax deductions, lower rates, tax credits, tax exemptions, etc.) but only 9 (Brazil, China, France, Germany, India, Italy, South Korea, Spain and the United Kingdom) have established specific revenue raising taxes (television license fees, taxes on art sales, etc.).
Bruno Perrin, EMEIA Media and Entertainment Leader for Ernst & Young, said “Anglo Saxon countries are rather neutral with regards to the types of cultural activity which benefit from tax incentives. By contrast On the other hand, some countries will make more of a distinction as to who benefits, particularly when it comes to individuals and private bodies investing or spending their own financial resources on cultural assets or activities such as art collections and patronage. Brazil and Spain, for instance, have implemented tax policies whose sole purpose is to encourage investors into culture.”
What incentives and taxes are in place?
France, with 13 different taxes and 47 incentives, is the country with the largest number of fiscal measures in place. Canada, Japan, Mexico, Russia and the USA also have a number of so called “cultural taxes”.
The sector subject to the most taxes is television broadcasting, which has 10 across the 14 countries including the traditional television ‘license fee’ in the UK and elsewhere. This is followed by film, the music industry, the preservation of national heritage and the performing arts.
Innovative fiscal measures can also be found, such as tax credits in the gaming and fashion industries and cultural development aid in rural areas. But, there are also more unusual measures such as the preservation of historical airplanes, national cemeteries and tax credits for "executive chefs." For instance, in California, there exists a tax break for owners of pioneers’ cemeteries and for aircrafts of historical importance.
The film industry
The film industry is the sector that receives the most support, followed by patronage and the preservation of cultural heritage.
Tax policies to promote the film industry mainly encourage growth in this area at a national or regional level and try to facilitate investments and attract more foreign production teams. However, many tax incentives for the film industry are often highly complex and this can be a barrier for non-sophisticated production teams.
Perrin explains, “It might not be too late to do something about the fact that there are now only a handful of countries with a genuine film industry. Tax incentives must be made accessible to international film makers.”
Preservation of heritage
The preservation of national heritage receives considerable support in all of the countries represented in the study, and is especially popular in Italy, Spain, Russia, Japan, the United Kingdom and France. For instance, in Spain a 1% levy is included as part of the building costs for public civil works, the proceeds of which are used to finance the conservation and enhancement of the country’s heritage sites.
In France, a comparable 1% contribution to the arts is in force on public civil works (assessed on total building costs) and takes the form of a legal commitment for the contractor to allocate 1% of the awarded construction budget on any public constructions to the acquisition of a piece of art from a living artist, which must be located in the building.
In Spain, there is a specific income tax reduction (15% on expenses) for individuals and companies acquiring abroad Spanish historical heritage assets which are to be relocated in Spain for a minimum relocation period of four years.
Does the recession pose a threat to cultural tax incentives?
At a time when countries face an almost unprecedented level of public debt there are bound to be challenges around the tax system supporting culture. Ernst & Young believes that fiscal policies relating to culture urgently need to be reassessed in order to concentrate efforts on tax incentives that stimulate the greatest economic activity, whilst retaining the ability to benefit the overall cultural health of the State and its people.
Régis Houriez, Media & Entertainment Tax Partner at Ernst & Young France, concludes, “Fiscal policy is a powerful tool for promoting and developing culture but the status of tax incentives may increasingly be in jeopardy in the current environment. Moreover, tax policy tools are not always easily adaptable to new business models in rapidly changing markets. One lesson from the survey is that tax policies should address the technical and operational aspects of the digital economy and internet operators.”
"We find these incentives mainly in countries that, at the institutional level, want to be seen by the world as cultural leaders – France being the most obvious example in this case,” says Petr Medvedev, Partner at Ernst & Young, Head of Tax and Law practice in the CIS. “Unfortunately the Russian tax system does not really cover this area and provides a very limited number of incentives that can benefit the broad population and businesses engaged in the cultural sphere."
The study was conducted in 14 countries (Germany, Brazil, Canada, China, South Korea, Spain, the United States, France, Japan, India, Italy, Mexico, the UK and Russia). The fiscal policies analyzed by Ernst & Young’s tax professionals are those as of 1 July 2009.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax and legal, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,400 professionals work at 16 offices throughout the CIS in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan and Minsk.
For more information, please refer to www.ey.com.