The Times of London report earlier this week that the New Zealand government has offered an uncapped tax rebate of, at least NZ$114 million, to attract Amazon Studios back to the country for the filming of a new Lord of The Rings series.

The news had Arfon Consulting’s subsidy control experts both rejoicing and, for their own amusement, assessing Auckland’s tax incentives against UK/EU subsidy control mechanisms.

The new streaming series will contain new story lines that go beyond a retelling of the Tolkien books on which Jackson’s films were based and will take viewers back to an era “set thousands of years before the events of The Hobbit and The Lord of the Rings” according to the official synopsis.

According to information released by the New Zealand Government under its Official Information Act (originally reported by the New Zealand news site, Stuff) the first season is going to cost roughly NZ$650 million (US$465m).

By way of comparison, HBO’s epic fantasy series Game of Thrones cost roughly US$100 million to produce per season.

Under New Zealand’s screen production grant, film companies are offered a rebate of between 20 and 25 per cent on every NZ dollar spent in New Zealand.

NZ Government documents obtained last week by Stuff, show that the NZ Treasury has labelled the show a “significant fiscal risk” and also highlighted that there is no limit to how much Amazon Studios will spend on the series, leading to uncertainty over the upper level of tax rebates the Auckland may be liable for.

In addition to Amazon Studio’s plan to film five Lord of the Rings seasons it is intends to shoot an as-yet-unannounced spinoff series.

In terms of the EU’s acquis communautaire (the accumulated legislation, legal acts and court decisions that, combined together, form EU law) whilst cinema and TV production fall under the aegis of “aid to promote culture and heritage conservation that… may be considered to be compatible with the common market”.

Indeed, EU Member States provide an estimated €3 billion per year in film support: €2 billion in grants and soft loans, and €1 billion in tax incentives.

Around 80% of this is for film production. France, the UK (no longer an EU member), Germany, Italy and Spain offer the majority of this support.

The European Commission in its aptly named Cinema Communication [pdf] states governments may award subsidies based upon the following four criteria:

1. The State aid must be directed to a product the content of which is identifiably of a “cultural” nature

2. Introduced a new rule requiring that up to 160% of the aid amount granted by a Member State be spent in that state, or require a minimum level of production activity to justify award of aid;

3. The amount of aid or subsidy granted must not exceed 50% of the production budget; and,

4. The use of state subsidies or other incentives for certain filmmaking activities (e.g. post-production) are not permitted.

With the previous Peter Jackson directed trilogy, The Fellowship of the Ring (2001), The Two Towers (2002) and The Return of the King (2003), having smashed global box office records, the cultural value of The Lord of the Rings franchise can be assumed to have been met.

Similarly, all three films were shot on location in New Zealand and sustained tourism to the country for many years in the pre-pandemic era, arguably meeting the requirements of the second criterion.

New Zealand’s tax incentive scheme - although uncapped - is limited to between twenty and twenty five per cent of in-country spend, comfortably below what would be the EU’s limit of fifty per cent.

It is unclear to what extent, for example, post-production may be carried out in-country, but as the country’s tax incentive scheme is predicated upon New Zealand spend only, any overseas post-production costs would be automatically ineligible for subsidy.

The United Kingdom’s own cinema, film and audio-visual support rules have been ‘grandfathered’ from the European Union’s acquis as detailed domestic regulations for subsidy control are still in development following the end of the two-year transition period of its departure from the European Union on 31-December-2020.

This includes the UK Government’s Film and TV Production Restart scheme which was approved by the European Commission in October 2020 as the UK was still subject to the European Commission’s jurisdiction over State Aid during the transition period.

In the meantime, Arfon Consulting’s staff and many, many others around the globe impatiently await the release of the new series whilst being broadly satisfied that state aid and subsidy control mechanisms for the film’s production set in an era when “great powers were forged, kingdoms rose to glory and fell to ruin, unlikely heroes were tested, hope hung by the finest of threads” have been met.