QUESTION FOR FILMTVLAW.COM:
As an entertainment lawyer do you have any info on these entertainment tariffs? Could producers actually get forced to pay a tax on foreign film and TV incentives? Any clarity on this would be awesome.
ANSWER BY BRANDON BLAKE, ENTERTAINMENT LAWYER:
A lot going on these days and I think that the idea of film tariffs blind-sided everybody. How could a new tax on film and TV save Hollywood? The long and short of it is that it’s not going to go anywhere, and at the end of the day I’m betting on some great new incentives and tax credits to kick start the US film industry, without damaging the foreign market. I’ll explain why below.
In addition, this is a great opportunity to introduce a new film fund I’m putting together that is going to provide much needed first-dollar equity financing for low budget, independent cinema that just happens to be “made in America.”
In addition to this article, I share more than a hundred in-depth entertainment industry articles on my website at www.filmtvlaw.com/entertainment-lawyer-qa. Please also check out my bio at www.imdb.me/brandonblake.
Movie Tariffs
I hesitated to dig into this topic because at any moment I expected there to be some backtracking or “explanation” about why no one really ever proposed a film and TV tariff. However, it seems it is under consideration and that Jon Voight released a semi-official plan that suggested a tariff of “120% of the value of the foreign incentive received” if the project could have been shot in the US. So that would mean losing every dollar of the incentive money +20%.
Before I explain why that is never going to happen, I wanted to discuss why there are some good conversations coming out of all of this, which ultimately really could save the US film business.
The Death of Hollywood
There is a very real problem with the US film industry. Even aside from the problems in California (think AB5, which I foretold would be an industry killer in California), on the national level, American film producers, and especially film crews, are at an unbelievable disadvantage to foreign tax incentives, which amount to a kind of regulatory capture of the global entertainment industry. What started out as a way to “level the playing field” with the US film industry became an overly successful war of subsidies, which not only take film production out of the United States, but also creates the problem of oversupply. Just like when countries subsidize milk or soybeans, the end result is often an oversupply and a low price for the product.
In addition, the regulatory capture through “local content” and “local talent” rules have insidiously cored out directing and crew positions for American filmmakers.
“Local Content”
The idea of film incentives was originally too good to be true: Here’s 30% or 40% back to shoot your film in XYZ country. Why shoot in Burbank and get hammered by location fees, permit fees, and security fees, when you can go to Australia where they want people to make movies and get 40% back plus cheaper rates on crew?
But of course, local citizens started asking why it was that the government was paying to make American movies. So then came the “local talent” rules, which require a certain percentage of the crew to be a citizen of the host country. That can’t mean the producers (they brought the project), and it can’t mean the cast (because everyone in the world loves the same 1000 actors), so it means the American director, director of photography, costume designer, art director, camerapeople, etc. are the ones that get left out.
Then came the “Local Content” requirements, which also make sense from the standpoint of the host country. Why should we be doubling every city for L.A. and New York? Let’s set the film in Dublin!
So, by this point, not only have the craftsman from the U.S. all been cut out of the films, but now even the scripts are changing to reflect the host countries culture, values and national stories.
None of that is necessarily wrong, but obviously some politicians in the U.S. have latched on to the idea that what is happening is that America is financing other countries film industries, and perpetuating their cultural exports, with what has started to look like a “cheap” investment of 30% of the budget.
Why Film Tariffs Are Illegal
Okay, now to the good part, which is why film tariffs are never going to happen. In the United States, film and television tariffs are illegal for a couple of reasons.
First, 50 USC 1702 exempts movies from tariffs "regardless of format or medium of transmission." This Code section titled "Presidential authorities" under the International Emergency Economic Powers Act (IEEPA), provides the President of the United States with broad powers over international economic transactions during times of national emergency.
Regardless of whether one feels there is a legitimate “national emergency” surrounding Hollywood’s failing movie business, the fact is that these emergency powers are limited, and one of those limitations is 50 USC 1702(b)(3), which exempts, among other things, movies from the President’s power to impose tariffs.
If that weren’t enough, the US Supreme Court has broadly interpreted the First Amendment’s prohibition against prior restraint, to include many taxes and fees that could otherwise be levied against published works, whether those be books, newspapers, films or television. That is most likely the reason that Congress exempted movies from tariffs in the first place.
So if you are at Cannes or Toronto, go ahead and make those incentives deals, because at the end of the day, movie tariffs will not happen.
A Hollywood Wishlist
If people want to get serious about helping the American film business then there are some things that could be done that would increase its competitiveness and bring back a lot of production jobs to the United States in a fair and profitable way without tariffs.
First: Literally every country in Europe can afford tax credits and incentives to support their film and television industry so why can’t the United States? Just like California, the federal government has treated the entertainment business like the golden goose, strangling one of the last viable businesses in America for every dollar. A 20% tax credit, on top of many state incentives would make US film and television production highly competitive again.
Second: Renew Section 181. It already has a 75% US production requirement, and it is one of the few incentives the United States has to make movies. If you added a 75% US production requirement in a new tax credit plan, the US could attract a huge amount of global production and keep American producers making films at home.
Third: While we are at it, make a “local talent” rule in the United States, requiring a US director, writer, and crew to take advantage of both Section 181 and also the new tax credit plan.
Fourth: Pull back the IRS from film productions and quit trying to treat documentaries and indie films as “hobbies” for tax purposes. Why do we have to shoot films in Italy or the UK for it to be recognized as valuable work for tax purposes? Just go ahead and treat filmmaking like a regular business, which it is, rather than trying to gouge producers.
Fifth: Both the federal government and the states should look at deregulation. This is an especially important problem in California. Do you know that not even a student film production is exempt from AB5, workers comp, insurance requirements, or the on-set teacher requirement? It’s a student film for a filmmaking class, and students have to hire an on-set tutor for themselves!
The bureaucratic nightmare that is making a movie in California is a dream for entertainment attorneys, but not for anyone else, and especially not for the production crews that have found themselves losing out to crews in states like Georgia and New Mexico. The reason producers originally came out to California was because it was the wild west and nobody cared what they did in Hollywood. That kind of spirit has been lost.
Equity Co-Financing
Finally, a brief word that I’m working together with several other groups to create an equity co-financing fund to support feature film and television production in the United States. We’ve put together two plans, one for productions budgeted at under $1.5 million, and a second for productions slated at $3 million and above.
There are some big gaps in access to financing in the American film industry and we are hoping to fill that by providing equity co-financing to commercially viable projects. The American film business needs to start recognizing the value of real technical skill, original stories, and dare I say it, “fun” movies and television series again.
As with all complex entertainment matters, please seek experienced entertainment legal counsel before making legal and financial decisions. This article is for informational purposes only and does not represent legal, accounting or tax advice. Do not act on this article without hiring legal representation.
Please do not send unsolicited scripts or concepts, which unfortunately cannot be reviewed and will be discarded.
- By Brandon Blake, Entertainment Lawyer
Brandon A. Blake is an entertainment lawyer and producer who works with Academy Award winning actors, directors and filmmakers. A complete biography is available at www.imdb.me/brandonblake.
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