Tax Obligations and Distribution in the Audiovisual Industry

Posted on Dec 20, 2024 in Economy

Tax Obligations in the Audiovisual Industry

1. Corporate Tax Calendar for Audiovisual Companies

In the course of their business, audiovisual companies face different tax obligations:

Income Tax: This tax period coincides with the calendar year and generally accrues on December 31st. The taxpayer (the company) must determine the tax due and submit the amount in the same place, form, and time limits determined by the Ministry of Finance. They must also include the time available to the Ministry and any deductions made.
Corporate Tax: Its object is the profits of the company listed in the profit and loss account, provided that there have been gains. The tax period coincides with the fiscal year and may not exceed 12 months. The chargeable event occurs on the last day of the fiscal year, so the declaration must be lodged within 25 calendar days following the approval of the company’s financial statements. The general rate for companies is 25%, while cooperatives are taxed at 20%.
VAT (Value Added Tax): This tax is levied when providing, executing, or carrying out taxable transactions. In the case of audiovisual producers, they must submit quarterly settlement declarations, and in some cases, there will be an obligation to do so monthly. The statement for the month of June is presented in August or early September, and for the last period of the year, during the first 30 calendar days of January.
Business Tax: This tax is equivalent to income tax for legal entities. It is part of the Spanish tax system managed by municipalities and is imposed directly for engaging in any type of economic activity. Unlike other taxes, the amount is constant regardless of the balance of the activity. This tax is levied for the mere exercise of professional, technical, economic, or artistic activity, whether or not it takes place in a particular locale. Companies carrying out agricultural, livestock, forestry, and fishery activities are excluded from paying this tax. The tax period coincides with the calendar year, except for statements by those starting an activity, which begin when the activity begins and finishes at the end of the year. The tax is payable on January 1st.

When it comes to investment in cinematographic or audiovisual productions, the producer has a number of financial tax deductions. In this case, the producer has an 18% deduction of the investment or production cost, while the financial co-producer has a 5% reduction on the amount invested. These deductions are always carried out from the tax period in which the work is complete. This was abolished on January 1, 2012.

2. The Application of VAT

VAT is a tax on consumption that falls on the consumer, but employers must collect it from clients and remit it to the Treasury after including it on the invoice. There are two schemes:

General Scheme: Currently at 21%, it applies when the employer buys goods and pays the tax burden to the provider. This is the input VAT. When an employer sells their product, they charge their customers for VAT, and this is the output VAT. If the output VAT minus input VAT results in a positive amount, the employer must remit the difference to the Treasury. If this amount is negative, the Treasury pays the difference.
Reduced Scheme: Currently at 10% for certain goods and services.

3. Settlement of Personal Income Tax (PIT)

The settlement of this tax by the taxpayer is conducted in three stages:

1. The taxpayer must categorize the income achieved during the tax period into three categories:

Income from capital
Imputed income
Capital gains or losses

The tax base consists of two parts:

The general part: Consists of income, rental charges, and gains and losses generated within a maximum of one year.
The special part: Consists of gains and losses generated over more than one year.

Income from employment, movable and immovable capital, and economic activity are added to imputed income. Compensation criteria are applied, which might be of three types:

Compensation of income and imputed income: If negative, it can be offset by any other income or imputed income without limits. If positive, it is integrated into the general part of the taxable amount.
Compensation for gains or capital losses within one year: Profit or loss is calculated, and the total amount of losses is subtracted from the total amount of earnings. If the result is negative, it can be offset by the positive balance of income and imputed income up to 10%. The excess must be offset in the next four years, up to the maximum amount each year. If the result is positive, it is integrated into the general part of the tax base.
Compensation for gains or losses over a period exceeding one year: If the result is negative, it does not affect the current statement but can be repaid in the next four years. If the result is positive, it forms the special part of the tax base.

Distribution and Exhibition in the Audiovisual Industry

A distributor is an intermediary between the producer and the exhibitor, or the nexus between the manufacturer of audiovisual products and their points of sale. There are two types of distributors:

1. Major Distributors: These are divisions of major Hollywood studios that have introduced their own distribution into the international market or have been associated with local distributors. They are characterized by their large marketing machinery and their power to pressure exhibitors.

2. Independent Distributors: These are not linked to the studios, are not necessarily involved in production, and often buy ready-made films. These companies are engaged in smaller films, which are their principal value, and distribute them with scarce resources.

Currently, there is a tendency for distribution companies to become co-producers or funders of the work, developing integrated structures of production and distribution.

1. Types of Distribution Agreements

Distribution agreements are license agreements for which the producer gives the distributor exclusive rights of exploitation under certain conditions of time, operating windows, and territory. There are two main types of agreements:

Net Distribution Agreement: This is a type of contract under which the producer and the distributor share box-office revenues at an agreed percentage, such as 50% or similar. This system is most common in the Spanish audiovisual sector and is favorable for the distributor because it allows for minimum recovery. It is unfavorable to the producer because it takes too long to see the benefits, if they arrive.
Sales and Distribution Agreement: This agreement is a method by which the distributor advances the producer the full amount of copies and advertising costs and recovers this advance from the share of box office receipts. Such agreements involve little risk for the distributor but usually carry a lower percentage of benefits and are often filmed exclusively for film and video rights.