Will the Film & TV Industry Benefit From Proposed Tax Reform

In 2004, Congress enacted Section 181 of the Internal Revenue Code to create a federal tax incentive designed to combat runaway film and television production.  Since its enactment, and subsequent extensions, Section 181 helped to reduce film and television production costs for those projects shot in the United States.  The most recent extension period for Section 181 expired at the end of 2016 and Congress declined to act to further extend this or other similar provisions affecting other industries.

With this federal production incentive now expired, and without the prospect of a further extension, focus has shifted to the potential rewrite of U.S. tax code which is expected to propose the elimination of certain tax credits, exemptions, and various deductions at a federal level, in favor of an overall reduced corporate tax rate.

Although specific tax legislation has not been introduced, the Republican (House) Blueprint is the main vehicle for tax reform being reviewed at the moment, introducing the concept of “border adjustments” applicable to business taxes, which has sparked vigorous debate.  Border adjustments are generally described as a destination-based tax principle similar to a value added tax (VAT) levied depending on where a good is consumed, rather than where it was produced.  Proponents claim that border adjustments would stimulate U.S. investment, while opposition is mainly from sectors that rely on imports.  

IFTA is in discussion with the House Ways & Means Committee members regarding the Blueprint to understand how the Border Adjustment Tax would work in practice for the film and television industry.  Specifically, to understand the proposal in relation to the deductibility of costs against U.S. revenues for films and television programs that are physically produced outside the U.S. (either directly by a U.S. company or by virtue of multi territory co-productions), along with films and television programs produced overseas and then licensed solely for distribution in the U.S.

The Trump Administration has not taken a position to date on the specifics of the Blueprint.  IFTA is soliciting input from its Members’ business models and what they see as potential impact of the Blueprint so as to provide constructive feedback to members of Congress on the Blueprint.