“Complex” is the word used by many producers to describe official international co-productions. Sonia Borella explores some of the legal and regulatory aspects and complexities associated with official international co-productions in Australia.
With the ability to gain access to finance and incentives in Australia and other countries, official international coproductions are becoming more attractive in this difficult time of obtaining finance, and tackling the associated complexities has become even more worthwhile.
An official co-production is a film or television project made in accordance with one or more of the official arrangements. Official international co-production treaties exist between Australia and each of Canada, China, Germany, Ireland, Israel, Italy, Singapore and the nited Kingdom, and less-than-treaty arrangements (each recorded in a Memorandum of Understanding (“MOU”)) exist between Australia and each of France and New Zealand (“official co-production arrangements”). In addition, a treaty with South Africa is currently being negotiated and the potential for official coproduction arrangements with other countries is under consideration. Denmark, India and Malaysia are some of the potential future co-production partners.
As MOUs are statements of intent entered into by the “competent authorities” for official co-productions in each country (Screen Australia in our case) and are not legallybinding [unlike treaties, which are between governments and binding under international law], their terms are generally more flexible than the terms of treaties. In addition to the MOUs with France and New Zealand, oneoff MOUs are entered into from time to time at the request of producers for specific projects.
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There are numerous potential benefits of official coproductions, including the sharing of creative and technical resources. However, some of the most important benefits which commonly influence a producer to consider an official co-production are: the ability to pool financial resources and share the associated financial risk, the access to local and foreign incentives and subsidies, and the access to the market of the other co-producer or coproducers and other markets with which they are otherwise associated.
n Australia official co-productions qualify as Australian films or programs. As such, producers of official coproduction projects may apply for financial assistance from Screen Australia and such projects qualify as local content for the purpose of free-to-air television quotas. Producers of official co-productions may also become eligible for federal tax incentives such as the Producer Offset. Indeed, the ability of an official co-production to access the Producer Offset (provided the relevant minimum qualifying Australian production expenditure (“QAPE”) threshold is met), without being required to meet the “significant Australian content” test, has made official co-productions increasingly attractive to producers, particularly where a majority of the work is to be undertaken in Australia. In calculating whether an official coproduction meets the relevant minimum QAPE threshold, expenditure in the other co-producing country or countries that would be QAPE if it was incurred in Australia is considered QAPE although the offset is available only on that part of the official co-production budget which is actually QAPE.
There are, of course, numerous potential disadvantages of official co-productions. One main drawback is the increased time and cost involved in the co-ordination of official co-productions, not least of which results from the often complex contracting process and the approval processes of the competent authorities. However, the complexity of the contracting process between coproducers may be somewhat moderated by a producer’s own activities: first, by undertaking their own due diligence on prospective co-producing partners to ensure the partnership “fits” financially and creatively and, secondly, by having early discussions with prospective co-producing partners as to their respective expectations regarding the project. These discussions should focus on the key terms of what will eventually be documented in a long-form co-production agreement between the co-producers, for example:
• What are the financial and creative contributions and responsibilities of each co-producer?
• How will gross receipts be recouped and how will net profits be shared?
• How will copyright in the underlying works and the film or television project be owned and licensed for distribution purposes? What about further projects based on the project or its underlying works?
• What happens in an event of disagreement between the co-producers? Who is the “lead” co-producer for overall and day-to-day creative decision-making?
• What about credits, etc?
It is often sensible for such key terms to be first set out in a document (what may be termed a letter of intent, deal memo, memorandum of understanding or similar) signed by both co-producers pending the drafting and finalisation of a long-form co-production agreement. However, the nature of such a document, in particular whether it should be legally-binding, ought to be considered, and legal advice sought, in any individual case.
HOW DO YOU DO IT?
An official co-production must be made under, and comply with the terms of, the official co-production arrangement between Australia and the relevant co-producing country. A project must also comply with the “International Co- Production Program Guidelines” of Screen Australia (the “Australian Guidelines”) and the guidelines and other requirements of the competent authority in the relevant co-producing country.
It is acceptable for an official co-production to involve a co-producer from a third country which also has an official international co-production arrangement with either Australia or the relevant co-producing country. Such a project must satisfy the requirements of each of the relevant official co-production arrangements, the requirements of Screen Australia and the requirements of each of the other competent authorities.
The official co-production arrangements each differ in their terms although there are many common elements. Differences include the television formats covered (for example, the official co-production arrangement with China only covers telemovies, in addition to feature films), the participants from countries outside of the coproducing countries which are expressly permitted to be involved in the official co-production subject to the approval of the competent authorities (for example, music composers), and the specific matters required to be addressed in the co-production agreement between the co-producers.
Obtaining and maintaining the balance between the financial and creative contributions of the co-producers required by the official co-production arrangements and, in particular, in Australia, complying with the points system set out in the Australian Guidelines, is a challenge faced by many producers undertaking official co-production projects. However, one of the most important tasks of a producer is to ensure that the creative integrity and audience appeal of a project are not diminished as a result of complying with the legal and regulatory requirements of official co-productions.
1. Preliminary considerations
An official co-production must be made by a co-producer from each of the co-producing countries who must together contribute 100 per cent of the cost of the official co-production, although the finance may be sourced from any country. The co-producers must not be linked by common management, ownership or control. Although an official co-production may be based on an underlying work (for example, a book or concept) originating from any country, it is a requirement of the Australian Guidelines that any script (including all drafts of the script) be written by nationals or permanent residents of Australia or the other co-producing country or countries. This requirement is an important preliminary consideration in any decision-making process as to whether to produce a project as an official co-production, particularly in the not uncommon situation where there are drafts of the script for the project already in existence at the time of discussing the project with prospective coproducing partners.
2. Obtaining and maintaining the requisite balance
between financial and creative contributions Each official co-production arrangement requires a minimum creative and financial contribution from each coproducer of usually 20 per cent or 30 per cent. The amendment of certain of the existing official coproduction arrangements that require a minimum 30 per cent contribution (in particular, the official co-production arrangements with Canada and the United Kingdom) to require a minimum 20 per cent contribution has been suggested by some in Australia. Indeed, the official coproduction arrangements entered into most recently (with China and Singapore) each require a minimum contribution of 20 per cent. Such an amendment (although not necessarily favoured by all) would solve the anomalous requirement that an Australian trilateral official co-production with Canada or the United Kingdom obtain and maintain a minimum contribution of 30 per cent from all three co-producers (a difficult undertaking) regardless of whether an official coproduction arrangement between Canada or the United Kingdom and the country of a third coproducer requires a minimum contribution of 20 per cent. The Australian Guidelines require that the percentage of the total budget contributed by the Australian coproducer must be equivalent to the percentage of the total budget spent on Australian elements of the project (plus or minus 5 per cent) and the percentage of Australian key creative participants and the percentage of other cast and crew (plus or minus 5 per cent).
3. The points system
The percentage of Australian key creative participants required to obtain certification as an official co-production is determined according to a points system which is set out in the Australian Guidelines. The points system allocates points to key creative participants, according to their nationality or residency, out of a total of 12 points for live action dramas and animations and 10 points fordocumentaries. Additional points (for example, a choreographer in the case of a musical film) or “splitting” points (for example, where there is an Australian writer and a writer from another co-producing country) may be approved, or points may be disregarded (for example, where an animation is to be voiced in the language of each co-producer), on a project by project basis. A points system is unique amongst the countries with which Australia has official co-production arrangements. It is the means chosen by the competent authority in Australia (previously the Australian Film Commission) to assess whether the creative contribution of each co-producer is in “reasonable proportion” to its financial contribution, as required by each of the official co-production arrangements. Views are divided as to whether a points system is desirable as a transparent and fair system or, alternatively, whether a points system results in undue restriction on the certification of official co-productions (and, accordingly, results in some worthwhile projects failing to be certified as official co-productions and possibly failing to be coproduced in Australia). It would, however, appear that even some of those that consider a points system desirable question whether all the key creative participants considered in the points system reflect the actual and contemporary key creative participants in projects or, on the other hand, whether the points system should be more flexible in its application. Undoubtedly these issues will be considered by Screen Australia in due course as part of its review of the programs it administers and, in this regard, Screen Australia is already liaising with stakeholders to consider the currency of the points system for animations.
4. Contributors outside of the co-producing countries
The general rule is that persons involved in the making of an official co-production must be “nationals” or “residents” (as defined in the relevant official co-production arrangement) of one of the co-producing countries. In the case of official co-productions with France, Germany, Ireland, Italy and the United Kingdom, nationals or residents of those countries include nationals and residents of all of the Member States of the European Union. Similarly, under an accord between Australia and New Zealand, Australian nationals are treated as New Zealand nationals, and vice versa, for the purpose of Australian or New Zealand official international co-productions. However, the official co-production arrangements provide that, in exceptional circumstances, the competent authorities may allow a limited number of performers from other countries to be engaged (the official co-production arrangement with Canada requires such a performer to be “internationally recognised”). Further, if location filming in a third country is approved, it is permissible for citizens of that third country to be used as crowd artists, in small roles, or as additional employees whose services are necessary for the location filming. There is further limited flexibility in some of the official co-production arrangements in relation to the contribution of certain third country personnel and undertaking work in third countries. For example, the official co-production arrangement with Singapore states that the competent authorities may approve the participation of restricted numbers of technical personnel from third countries where technical expertise does not exist in the co-producing countries. Views are again divided as to whether additional third country personnel should be permitted to contribute to the making of official co-productions and, in addition, whether additional work should be permitted to be undertaken in third countries. For example, a more flexible approach to the requirement for all drafts of a script to be written by nationals or permanent residents of Australia or the other co-producing country or countries may be appropriate particularly in respect of a project which has been developed over a number of years prior to an official coproduction being contemplated (but which has a foreign writer of a draft of the script). A more flexible approach to the use of animation companies in third countries for technical work may also be appropriate. In many respects, these issues are dependent on the views of the competent authorities of the co-producing countries and the relevant governments and, in addition, whether to allow the contribution of such additional third country personnel or work in third countries would necessitate the timeconsuming task of amending the relevant official coproduction arrangement.
5. Applying for official co-production status
To apply for official co-production status, the Australian coproducer must submit an application to Screen Australia together with supporting information. A key document for the application is the co-production agreement between the co-producers which must include any specific matter required to be addressed by the relevant official coproduction arrangement in addition to all key and other terms agreed by the co-producers. All other co producers must make separate applications to the competent authorities in their own countries. Screen Australia will make a provisional decision on each application based on whether or not the application complies with the relevant official co-production arrangement or arrangements and the Australian Guidelines. Final approval of an official co-production project will only be granted when Screen Australia and the other relevant competent authority or authorities have approved the completed project as eligible for official coproduction status.
Producers may obtain further information about official co-productions, including the application process and copies of the official co-production arrangements and the Australian Guidelines, from Screen Australia’s website (www.screenaustralia.gov.au).