27
Tue, Feb
44 New Articles

Romania’s Disaster Movie: The Film Industry Cash Rebate Scheme that Wasn’t

Romania’s Disaster Movie: The Film Industry Cash Rebate Scheme that Wasn’t

Legal Markets
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

2018 saw the introduction of the Romanian movie production cash rebate system and a subsequent uptick in movie productions seeking to develop in Romania. The ambitiously outlined rebate system seemed quite appealing, initially. However, over the past three years, it failed to live up to its original goals.

Pre-Production

“The initial outline of the scheme consisted in a cash rebate that covered up to 45% of the total eligible expenses for film production in Romania,” Spataru explains. “It covered 35% of eligible expenses for the purchase, rental, and manufacture of goods and services for the development of movie projects and movie production in Romania, as well as fees, salaries, and other payments to persons related to the implementation of movie projects.” In addition, the scheme covered an extra 10% if the movie promoted a “Romanian geographical area, a Romanian city, or Romania as a touristic destination,” she reports.

“By granting this state aid, Romania aimed at developing European and international cinematographic cooperation, supporting film producers to increase local film production, creating new jobs in the creative industry and related industries, as well as promoting cultural identity and national minorities in Romania,” Popescu & Asociatii Partner Loredana Popescu says. She describes this approach as “extremely attractive,” more so than in other countries: for example, in Croatia the rebate stands at 20%, in the Dominican Republic at 25%, in Estonia at 30%, or in Germany at 20%.

Spataru agrees, adding that “the only countries that covered expenses to a comparable degree were some of those where tourism has an important role in their national economies: Italy, Greece, and Malta.” The scheme was so attractive that, as Wolf Theiss Partner Ligia Popescu reports, the maximum annual budget of EUR 50 million, initially set from 2018 to 2020, was significantly increased. “Since August 2020, the duration of the scheme was extended until 2023, and the total budget increased to approximately EUR 250 million,” she reports.

Still, with all its benefits and perks, the scheme did not get as much traction as it was hoped, even with Romania being “known on the market as a relatively inexpensive production site, with good and experienced professionals available, while also offering substantial advantages over similar countries,” according to Musat & Asociatii Managing Partner Paul Buta. “It did not result in a substantial increase in the number of movie productions in Romania: 50/51 productions in 2018, versus 41/42 in 2017 – which might seem significant – but was only slightly up from 49 in 2016,” he reports.

Ready, Camera – Action

Things did not go according to the script, however. “The system had all the features of a too-good-to-be-true governmental initiative,” according to Ligia Popescu, “put together in a rather hasty and populistic way, with little thought given to the practical mechanisms such as logistics, budgetary allocations, or secondary legislation explaining specifically how the scheme would work.” Consequently, she reports, the scheme triggered “the disruption of business plans for the applicants and their commercial partners as well as political tensions.”

Leroy si Asociatii Head of IP Adriana Spataru provides further insight. “According to the Film Commission in Romania, there are recommendations for taking into consideration the already-submitted payment requests, concluding the projects that are under analysis, and amending the cash rebate system in a manner that would make it less bureaucratic,” she reports. Still, she believes it would be premature to evaluate the system’s viability, as that would require “careful monitoring of the evolution of disputes over time and of any changes the Romanian state would bring forth to overcome the current obstacles – assuming the national policy regarding the movie industry would continue to favor this project.”

Indeed, the number of disputes is not negligible. “According to our information, the Romanian government owes the applicants for state aid regarding the film industry more than EUR 35 million,” Loredana Popescu reports. “As for the irregularities, from a procedural/bureaucratic perspective, official sources admit that the aid has not been paid due to a missing payment procedure at the Ministry of Economy level,” she further explains.

Ligia Popescu agrees, stressing that “the scheme has been substantially delayed by bureaucratic hurdles created by the constant restructuring of the institutional architecture responsible for implementation.” As she reports, the “initial provider of the state aid scheme” was switched from the National Commission for Strategy and Prognosis to the Ministry of Economy, Energy, and Business Environment. After that ministry was restructured, Ligia Popescu says the provider changed again, this time to the Ministry of Economy, Entrepreneurship, and Tourism.

Buta echoes the others in saying that “the main objective of the scheme – to support the local movie production industry and increase Romania’s appeal as a movie production site – would have required, more than anything else, stability and predictability, neither of which could be achieved when the mechanism stopped working so early after it being established.” Functionally, he says, the scheme appears not to be working.

Development Hell

“The extent to which the analyzed situation impacted the Romanian economy should be investigated in the medium and long term,” Spataru says. As she reports, there are currently eight cash rebate cases pending before Romanian courts, 29 unpaid payment requests valued at over EUR 30 million, and a further 19 projects “currently under analysis,” valued at over EUR 25 million. “Indeed, the reputational damage for Romania could also be taken into account,” she adds. “The situation could result in fewer movies being set in Romania and also a potential hit to our tourism industry, which would no longer benefit from the same number of movie productions featuring Romanian locations, naturally promoting these locations beyond our country’s borders,” she explains.

“Right now, the government is in an apparent deadlock, with the competence to administer state aid under fire, since the amount due to be paid is not included in the 2022 state budget,” Loredana Popescu chimes in. However, she does point out that the slowdown in movie production has coincided with the COVID-19 pandemic, making it difficult to pin on the cash rebate scheme alone. “According to some estimations, the Romanian economy has lost tens of millions of euros from the cinematographic industry, a loss that can jointly be attributed to both causes,” she continues, adding that the “Romanian Alliance of Film Producers estimates that more than EUR 50 million is owed to international productions that were filmed in Romania after the state aid program was launched.” Buta agrees it is “very difficult to estimate the number of productions derailed by the malfunctioning of the state aid scheme.” Still, he does stress that “the number of productions dropped to 41 in 2020 (from 54 in 2019), which is identical to the number of productions before the establishment of the support scheme.”

The Government’s Cut

“An increase in the institutional celerity of the Romanian government – undertaking specific measures to remedy the already identified deficiencies – would be highly desirable,” Spataru stresses. Out of eight pending proceedings, she reports “most of them were lost by the government in the first instance, and one of them was also lost on appeal. The only cases the government won were a result of the expiry of the limitation period,” she says. “The government officially stated that they are working on finding solutions to make the granting of state aid more efficient,” Loredana Popescu chimes in. It intends to continue the scheme at least until 2025, “however, it has suspended applications for the program, which was supposed to receive EUR 50 million annually,” she says.

While the scheme is “included in the current government’s program,” Buta believes its problems persist. “The fact that the authority in charge of granting the state aid has changed numerous times has prevented these flaws from being properly addressed,” he explains. “In terms of litigation outcomes, the plaintiffs seem to prevail the vast majority of times,” he continues. However, all that is won, in most cases, “is an order for requests to be analyzed, not money paid,” he explains. “Therefore, when computing the resources needed for even such limited success – and the delay in obtaining any payment, when and if such would be, eventually, ordered by courts – the whole exercise becomes not very practical.”

Loredana Popescu concludes that, even with a high rebate percentage, the institutional blockage and lack of actual payments could spell trouble for Romania’s film industry: “film producers have turned their attention to countries such as Croatia, Bulgaria, or Hungary, despite their lower percentage of eligible expenses.” Spataru agrees that those countries “probably managed to maintain a reputation for punctuality regarding their movie funding systems.” Still, beyond the current circumstances of its movie financing system, she stresses that the country’s strong points yet apply: “Romania offers both a natural and anthropogenic setting that is completely remarkable.”

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Popescu & Asociatii at a Glance

Popescu & Asociatii is a top Romanian business law firm founded to provide premium integrated services to premium businesses, both in Romania and abroad, in all the relevant areas of practice, and especially in all industries of interest for active economic players.

Established as a full-service law firm, Popescu & Asociatii genuinely combines the expertise and exposure in the consultancy field with high level of strategic capabilities and experience in trials and court rooms, to provide state-of-art advice and representation both in local and cross border deals and files. The firm acts for corporation, local companies, banks and financial corporations, as well as for investment funds and entrepreneurs in all the areas of law: Banking and Finance, Capital Markets, Corporate and Commercial/Mergers and Acquisitions, Competition and Antitrust, Dispute Resolution, Employment, Compensations and Benefits, Energy and Natural Resources, Environment, Healthcare & Pharmaceuticals, Intellectual Property and GDPR, IT, Telecom & Media, Infrastructure, PPP and Public Procurement, Prevention, Compliance and White-Collar Crime, Real Estate and Construction, Restructuring and Insolvency, Transport Law.

Our mission is to deliver strategic, excellent and innovative legal and business solutions. Excellence, collaboration, and innovation are at the core of the way we work, with each other and with our clients. We focus on building long-term relationships and we do this by staying true to our founding principles: to provide client service and the highest standards, always keeping in mind work ethics, integrity and the responsibility towards our clients businesses, deals and cases that they entrusting us.

Popescu & Asociatii is ranked and recognized among outstanding law firms in Romania by all the high-profile legal directories researching the Romanian market, Chambers & Partners, Legal 500 EMEA, IFLR 1000 Financial and Corporate and Benchmark Litigation Europe edition. In addition, the firm received Best Litigation Law Firm in Romania award and has been recognized as one of the best White-Collar Crime Romanian law firms, based on our outstanding experience and market recognition in Romania, at the Legal Annual Awards Gala.

More information about Popescu & Asociatii can be found here.