Brexit and potential impact on the culture, entertainment and media sector

The age of ’Cool Britannia’ may be a distant and faded memory but the result of the referendum brings back into focus the challenges facing cultural industries which, in many cases, don’t have borders and interact strongly with partners both in Europe and the US.
 
Before the referendum, Tony Lennon, research officer for BECTU, published a well thought out paper on likely implications for the industry. In this, he identified two key areas of potential uncertainty:
  • Firstly, the question of whether foreign direct investment into the industry, estimated to be worth £1.2bn to the UK TV and film production sector, will be affected. Concerns about access to the single market could result in investment being redirected to other countries within Europe. The freedom of movement for labour (and services) is also an important consideration when considering investment and where special purpose vehicles established for major productions are situated.
  • Secondly, the impact on international trade agreements which, outside Europe, raises questions over the future of any trade deals with the US. Previous experience of other countries shows that negotiations under the North American Free Trade Agreement (NAFTA) have been very tough.
At present, Article 167 of the Lisbon Treaty covers culture, encouraging cooperation between member states under the principle that “the Union shall contribute to the flowering of cultures within Member States”.  Article 167 is not long, only five paragraphs, but without this treaty agreement, the UK could be in a weakened position when it comes to cultural protection and exemptions when negotiating new agreements both with the US, a significant partner, and former EU partners.
 
Culture embraces a wide range of industries not just film and TV production, where investment risk has been identified, but also many operation in a digital market which do not have borders in the accepted sense. Access to a single market has been important, not just in sharing and hiring staff, but in agreements around tax, royalties and attracting funding. Withholding taxes are going to go to individual double tax agreements  as for non EU countries and there may not be a major impact in the long run.
 
Funding for independent companies have often worked in collaborations and co-productions and there is a risk that these will prove more difficult to agree, and that decision making and investment could be postponed. There is risk here to small businesses and start ups operating in the digital and gaming markets, as well as independent TV productions.
 
Going forward it will also be important to consider VAT issues around the movement of goods, for example the export of works of art to European sales and exhibitions and trade within the international art market where London interacts with dealers and galleries throughout Europe and the US.
 
Within the current EU VAT system, there is generally no concept of ‘import’ and ’export’ between Member States, but instead there is self accounting for VAT on ‘dispatches’ and ‘acquisitions’, which removes the need for VAT to be physically paid at importation. It will depend on what type of trading relationship is negotiated that will determine whether or not something similar can continue. Where supplies are made electronically (e.g. online streaming of music/videos, digital downloads), it may in future, be necessary to account for VAT on such supplies in a similar way to other non-EU businesses, through the modified ‘non-Union VAT MOSS scheme.   

 
Overall, as in many areas,  there is going to be a period of uncertainty and the ’flower of culture’ may wither a little in the short term. Culture in all its forms is cross-border and makes a significant contribution to the UK economy. There will undoubtedly be strong efforts to preserve investment but the devil is going to be in the details of new agreements that will have to be negotiated. At Moore Stephens we will be watching developments closely to see how changes will impact our sector and our clients and will post updates as more becomes clear.
 

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