The Department of Arts, Sports and Tourism in association with the Revenue Commissioners and the Minister for Finance present an Irish Government production of Cutting Your Tax Bill - now showing until 2008.

When the words "Section 481" crop up amid a long list of production credits, cinemagoers can conclude that the film's budget has been bumped up by Irish investors seeking tax-efficient outlets for their cash.

As Section 481 film relief is one of the few remaining income tax shelters left to investors, and one that is imbued with a certain Tinseltown glamour-by-association, taxpayers are queuing up to take advantage of the few film projects that have been successfully lured to Irish shores, despite intense competition from other jurisdictions.

Lassie, a new adaptation of the 1938 novel Lassie Come Home, due to be released before Christmas, has been produced by Irish company Element Films and partly financed by Section 481 investors, all of whom can expect a return of about 10 per cent on their investment.

The film, starring veteran actor Peter O'Toole and Samantha Morton, is actually set in Yorkshire and Scotland but was filmed here and in the Isle of Man.

Anglo Irish Bank, which has a dedicated film finance unit, sourced 175 investors to help fund the film, with each investor putting up €31,750, the maximum sum allowed under the scheme.

The total of over €5.5 million in funding makes Lassie one of the biggest Section 481 productions in the Republic this year, according to Andrew Lowe of Element Films.

"This year has been a bad year," he says.

The migration of Hollywood blockbusters to lower-cost countries and those that offer greater tax incentives means the number of big opportunities for film investors has dried up.

In the US, New York and Louisiana have introduced tax incentives and several other states are looking to get in on the act.

The total Section 481 finance allowed is capped at €15 million for films with a budget over €27.2 million and at 55 per cent of the overall production budget for films with a budget of between €6.35 and €27.2 million.

"This limits the net benefit to the producers and is also disincentivising companies from spending more than 55 per cent of the budget in Ireland," says Lowe.

Tax relief on film projects is also restricted to 80 per cent of the investment, or €25,400.

"If we were able to have 100 per cent write-off, the producers could increase their proportion of the net benefit and subsidise their budget more effectively," he says.

Screen Producers Ireland, which represents the film industry, has lobbied for more generous investment caps and a return to 100 per cent relief.

But investors do not see the full benefit of even the 80 per cent write-off.

For an investor who pays tax at the higher rate of 42 per cent, the value of the tax break is €10,668 and the net cost of the investment is €21,082.

A typical return based on a film's pre-sale agreements is €2,100, says Lowe.

So investors effectively make a loss on their gross €31,750 lump sum, but a profit of 10 per cent on the net cost of the investment, receiving back €23,182 - and hopefully an invite to the film's premiere.

Although there is no end of people looking to invest, Lowe says, they tend to be middle managers rather than the high-net-worth crowd.

"Film finance is not for the super rich in Ireland, because the return isn't high enough," he admits.

And in some respects, both Section 481 and its close relative, the Business Expansion Scheme (BES), have been overshadowed in recent years by property-based tax incentives such as the Section 23-type rural and urban reliefs and the Section 50 student accommodation schemes.

"Property-based reliefs have been the preferred route for many investors, particularly for those with rental income, because the return on the investment has been higher. In the case of Section 23 investments, the individual gets a real asset at the end," says Maeve Corr, director of Deloitte Pensions and Investments.

Section 481's real attraction for investors is that they can get their hands on a likely 10 per cent return within 12 months, and some people do borrow in order to invest the full €31,750.

This is Section 481's one big trump card over the BES, where investors can receive tax relief on 100 per cent of their investment up front but have to wait five years to see any return on their money.

"Film finance has the advantage of only being held for one year. Usually when the funds are raised the project is ready to run and the capital will be employed straight away," says Corr.

"In addition, film projects can be seen as less risky than BES, for instance if a distributor has agreed to buy the project in advance."

Some BES investors suffered from placing their faith in start-ups during the tech era of boom-and-bust and are less inclined to invest in such schemes again, says Corr.

Under BES, shares must be held for at least five years if investors want to retain the full tax relief and the company must start trading within a certain period from the date of the investment to qualify.

Five years is a long time for something to go wrong. "We find that the research necessary into the company that a BES investor is considering can sometimes act as a deterrent," says Corr.

With BES funds, where the return is based on a number of small businesses, investors can use the research skills of a fund manager, who will carry out due diligence on the underlying investment.

"While there are a number of fund managers with a track record, like all investments this is not a guarantee of future returns," says Corr.

"Often in the case of a fund the returns can be mixed, with some very successful projects and some less so."

The one situation both Section 481 film investors and BES enthusiasts will want to avoid is clawback of the tax relief.

A spokesman for the Revenue Commissioners says instances of clawback in both schemes are rare.

But that may be little comfort to more than a thousand investors in the Merlin Films Group, to whom it sent letters in July demanding that they repay tax because the company, it claimed, had not provided sufficient proof that the money raised was spent on film production in Ireland.

It is understood that some of the investors are appealing to the Revenue on the advice of Merlin, which says it has given the Revenue sufficient information about the fund. Other investors have settled.

Over the decade to the end of 2002, the cost to the exchequer of Section 481 tax relief was €265 million.

But the Revenue believes the loss to the exchequer due to abuse of the scheme over that period was about €23.3 million.

The film industry says that the risk of abuse and subsequent clawback of tax relief has been greatly reduced since the Revenue Commissioners took over the certification process at the start of this year. Before then, the Department of Arts, Sports and Tourism certified the films and the Revenue only checked up on it later.

"The fact that the Revenue Commissioners runs the scheme should provide some comfort. It is very highly regulated and we have to provide details of the production schedules," explains Lowe.

"There is the risk that people will walk away and not do what they say they will do, but that risk is avoided if you are dealing with reputable people with a track record."