The mood is not quite as joyous as you might expect, though. Producer Andrew Lowe of Element Films recently returned from the US, where he got a "pretty sobering" message during a week in Los Angeles and New York. "They remain interested and warmly disposed towards Ireland, but there is no comparison with the UK."

Just as Ireland introduces its biggest ever increase in the level of Section 481 taxincentivised investment that can be put into film, its favoured neighbour has gone one better with a new tax credit system. Britain is offering a benefit worth up to 5% more to producers, depending on the budget of the film.

More significantly, the British incentives are available to all films made in the UK, while the Irish breaks are restricted to Europeans working in Ireland. So you want to use Tom Cruise?

You're going to head for Britain.

"They have wiped the floor with that, " Lowe said. "The real business in inward investment is coming typically from the US . . . and, for American studios, there is no argument."

On the bright side, the British incentives don't apply to investment in television productions, and this is proving a boon to Ireland. Element is currently shooting Murphy's Law, the detective series starring James Nesbitt, in a co-production with the British company Tiger Aspect.

The Irish company formerly worked with Tiger on The League of Extraordinary Gentlemen and Bafta-winning Omagh. "We persuaded them to come here on a combination of Section 481 and a small investment by the Film Board, " Lowe said. "We went to them because we knew they had struggled with Murphy's Law last year in terms of financing."

Element has also reached agreement with World Productions, maker of Ballykissangel, to make a series called Rough Diamond, set in the world of Irish horseracing.

"We hope it will go into production at the end of July, " Lowe said. "If that gets recommissioned, it could be long-running and provide long-term employment here."

Ireland has a strong track record of co-production with the UK, partly due to the fact that the country has been dependent on London for post-production facilities, according to Adam Dawtrey, European editor of industry bible Variety.

James Flynn, producer of a series called The Tudors that began shooting in Ardmore last Monday, said he would like to see "some kind of formal Ireland/UK co-production agreement".

The Tudors is an IrishCanadian co-production for America's Showtime network starring Cork star Jonathan Rhys Meyers. Flynn says it will employ around 250 people for 20 weeks.

The new tax breaks were an important incentive, he said. These allow producers to raise up to 80% of their budget from tax-based investment. This is an increase from a maximum of either 55% or 66%, depending on the production. The budget cap has been raised from 15m to 35m (see panel).

Ireland's last big year for feature films was 2003, when King Arthur was shot. The Tudors, which involves six one-hour episodes, is exactly the type of project Film Board chairman James Morris wants to attract.

"We have a unique opportunity, which is attracting good quality TV production, " he said. "The industrial agenda is to bring in good quality production, to get more Irish opportunities for Irish filmmakers at all levels."

The advantage of Section 481, Morris added, is that it is straightforward . . . and less costly to administer than the British system. "Will we need an adjustment? Quite possibly. But we need to be absolutely sure of the effect of the British changes on the business we are trying to attract. There is a limit to how many big American productions we can take anyway."

For Lowe, the UK tax credit is the most serious competitive issue facing the industry. "If that can be addressed, the government can level the playing field.

"What they are seeing in Britain is that films set up to shoot in Eastern Europe are going back to Britain. The old sale and leaseback system covered the cost of crews shooting overseas, but, under the tax credit system, they have to work in the UK."

Lowe had a meeting with Minister O'Donoghue in Cannes, where the minister spent two days pressing foreign producers' flesh, and said he believes the minister understands the challenges "loud and clear".

Morris, too, is upbeat about government support. Before Christmas, the Film Board secured an extra 1.5m from government that he says generated 25m worth of production this year.

Morris says he was also surprised at the positive reaction to the announcement of plans for a Los Angeles office. The idea is that Ireland "gets on to the radar" in Los Angeles, he said. "After that, it is up to the producers to make it work."

Now that Ireland cannot compete on cost, has lost its competitive advantage on tax incentives and, at best, could hope to level the playing field, the industry will simply have to make the best of it, according to Dawtrey at Variety.

"Maybe it's an opportunity as well as a challenge. Maybe it's time for Irish cinema to stand on its own two feet."

BUYING A LITTLE PIECE OF HISTORY

ANGLO Irish Bank raised the finance for The Wind the Shakes the Barley, the co-production between four countries that represented Ireland at Cannes.

The overall budget was 6.4m and Anglo raised 3.6m in tax-based investment.

The bank is also raising finance for The Tudors, which began "lming in Ardmore last Monday. "It just about made it under the new rules and the Americans were thrilled, " said Elaine Gill, head of Anglo's film finance division.

Under the new rules, productions can raise up to 80% of a maximum budget of 35m. In any tax year, an individual can invest up to 31,750 in "lm production and get tax relief of 80% to a maximum of 25,400. Gill said Anglo expects to raise around 40m in Section 481 investment in the first half of this year.

"It's not a tax break for the very rich, " she said. "If you were a single person earning 57,400, you could invest the full amount."

Last year, 28 projects were certi"ed under Section 481, involving a total project spend of 125.5m, of which 63.9m was Irish. This year, seven projects have been certi"ed, representing a total project spend of 45.5m and Irish spend of 25m.

Since 1994, 344 projects have been certi"ed under Section 481, representing total certi"ed spend of 2bn. The structure of a Section 481 investment is that the taxpayer buys shares in the production company, which are usually held by a nominee company. A maximum investment of 31,750 would typically be split between the taxpayer writing a cheque for 8,573 and the bank giving a loan of 23,177 for a minimum of a year.

Once filming is completed, the product delivered to the distributor and the film production company liquidated, the loan is repaid. The taxpayer's equity is repaid through a Section 481 tax refund.

Gill advises that to get return of equity plus profit, the tax relief has to be at the marginal rate. An investor putting in the maximum amount would then net a profit of 1,820.

It's not money for old rope. If the film or series is not completed and delivered, investors are liable for the bank loan. An independent completion bond will provide some comfort, but won't protect investors from fraud or from creditors of the Section 481 company.

Film investors have been burnt in the past, but Gill says Anglo's record is clean. "A lot of our investors are very enthusiastic investors who really enjoy investing in "lm, " she said. "An awful lot of investors ask me for tickets to premieres." Note: she can't provide them.