Risk limitation measures for the investor.
In order to supervise and help to secure the initiatives of investors under the Tax Shelter, SCOPE deploys a set of safeguards.
With a 98.82% success rate in obtaining tax certificates since 2003 (135 projects) and 93.20% since the Tax Shelter unit has been carrying out checks (36 projects), SCOPE has demonstrated the efficiency and robustness of its service. Here’s an overview of the main measures offered to the investor for limiting risks.
Last update on : 22.07.2020
SCOPE's particular structure, which links fundraising activities (SCOPE Invest) to the executive production of eligible works (SCOPE Pictures), constitutes an effective control mechanism for expenditure incurred on Belgian soil. As a result, having the budget implemented by SCOPE offers an appropriate response to the requirements of the Tax Shelter1 legislation. The Tax Shelter is a fiscal incentive designed to stimulate Belgium’s audiovisual sector. The two sister companies, along with SCOPE Immo, 100%-owned by SCOPE Invest, are jointly responsible for the compensation obligation in the event of the Tax Shelter certificate not being issued.
SCOPE’s strong financial footing vis-à-vis its volume of business makes it a leading partner on the TS market. The “equity” ratio divided by “Tax Shelter funds raised annually” (without taking into account funds raised in previous years) of SCOPE Invest and SCOPE Pictures is greater than 50%2, which is among the highest in the sector. The ratio of "funds for which certificates have not yet been issued (pending)" (estimated at €50 million as of 31 December 2019), divided by the level of security3 offered by SCOPE via the contractual guarantee is comparable with the situation of competitive Tax Shelter intermediaries. Moreover, the company has no financial debts, a fact which demonstrates SCOPE’s solvency. If SCOPE Pictures were to default on one of its obligations or provide imprecise statements that prevented the granting of the tax certificate, the company would pay the investor a gross sum in compensation for the loss incurred.
1. For a detailed examination of the TS legislation, we invite you to consult the article: "What are the terms of the Tax Shelter’s? An investor’s guide."
2. As of 31 March 2020, the total equity of SCOPE Invest, SCOPE Pictures and SCOPE Immo stood at €7 million, while 11 million in funds were raised in 2019. See the latest approved annual accounts in Appendices 12 to 15 of the Prospectus.
3. The risk factors are detailed in section 2 of the Prospectus dated 23 July 2020.
Last update on : 22.07.2020
An in-depth evaluation of the different dedicated insurance products on the TS market carried out by SCOPE has concluded that the exclusion clauses contained in them effectively make them inoperative. Since these clauses constitute the chief risks in terms of failing to obtain tax certification, SCOPE does not consider it appropriate to take out insurance of this type, which SCOPE says does not offer sufficient security4. Moreover, it should be noted that all works coproduced by SCOPE Pictures are covered the usual insurance for the audiovisual sector and, where applicable, would compensate the investor (see below), even if the systematic and full nature of the compensation cannot be guaranteed to the investor. From the same perspective, and in the event of an error engaging the liability of one or other of the sister companies, SCOPE also holds a professional liability policy.
SCOPE undertakes to ensure that the Film complies fully with the eligibility criteria set out in the TS legislation and that the terms and conditions of its production, completion and marketing form no obstacle to the issue of certification5. The Standard Agreement6, designed to bind SCOPE to the investor, also stipulates that SCOPE Pictures “declares and guarantees that the Producer and the Coproducers […] have assembled the funding required to cover the entirety of the “Budget” and act as guarantors for the film’s correct completion in accordance with best professional practice […]”.
In response to the risks inherent to the cinema industry, SCOPE activates a set of mechanisms, including those of "due diligence" and "guarantee of correct completion of the film or prefunding". Before the signing of any contract binding SCOPE to the investor and committing the former to the coproduction of a work, SCOPE conducts a systematic array of evaluations concerning the state of progress of the film as well as all of the contractual elements (contracts with cast members or insurance & coproduction contracts). SCOPE lastly guarantees the film’s correct completion, sometimes by taking out insurance specific to the cinema sector known as a “completion bond”, which is issued by companies such as Film Finances International, European Film Bond, International Film Guarantor or by any other company of equivalent renown and reliability. This mechanism is more common among British film productions. Prefunding initiatives with banks specialising in the cinema sector (Coficiné, Cofiloisir, etc.) take the place of the completion bond in other cases, limiting the risk of non-completion for financial reasons (in contrast to the “completion bond”, which is triggered downstream to compensate the financial contributors). If a work in the course of production should collapse despite all of these measures, SCOPE’s joint and several responsibility undertakes to pay the investor the payment of an amount equal to that which they would have received had the tax break been obtained.
The pioneering nature of our company, its consolidated know-how in terms of the selection of work and administrative follow-up, as well as the special rapport which it maintains with all European contributors, all represent additional risk limitation mechanisms which make SCOPE the partner of choice for investors.
4. Recent news backs up SCOPE in its negative assessment, since one of the main insurers of the Tax Shelter risk is current in litigation before the courts with one of the main approved intermediaries, which used SCOPE's services to cover the Tax Shelter risk of its investors.
5. See Article 194ter of the 1992 CIR.
6. See Article 1.4 of the Standard Agreement, Appendix 7 p.122 of the Prospectus.
Last update on : 22.07.2020