Reacting to the News
After weeks of moving forward with our efforts to promote the extension of film incentives and their inclusion in the incentives code, we woke up to an alarming headline from el Nuevo Día which states that the film industry is causing mayor losses to our Treasury. As many of you know, because of first hand experience and previous government press, the film industry is flourishing in spite of recent economic and social setbacks. This is mostly due to our offering of competitive film industry tax credits under Act 27-2011, as amended (“Act 27”). Why then, does el Nuevo Día imply that the film industry is harmful to Puerto Rico?
The article features the government’s efforts to study all incentive legislations (particularly, their ROI) to determine whether they should be included in the new unified incentives code. However, the article focuses on the results of the Film Fund (Act 121 of 2001, as amended), which is a completely different legislation from Act 27 and unrelated to tax credits incentives, and fails to distinguish between the two.
Like most other states and countries, Puerto Rico has (or had, because of the fiscal crisis, the Film Fund has not been operational since 2015) a Film Fund which provides loans to filmmakers knowing that many of the films will not be able to repay the loans. The newspaper article attributes losses of 87% to the Film Fund, but fails to mention the importance of having this subsidy system. Without the Film Fund’s support, producers and directors such as Luillo Ruiz, Frances Lausell, Raúl Marchand and others, would not be where they are today. Local films made with the Film Fund have greatly contributed to the increase of quantity and quality of our crews. In our opinion, it is necessary to subsidy local film projects like it is done in many parts of the world. After all, a film is always both art and a business.
Now, whether the Film Fund is necessary or not (we think it is) is a completely different argument and should not be considered when evaluating the inclusion of the film tax credits under Act 27 in the unified incentives code. Thanks to a recent study by Estudios Técnicos, Inc. we now know that film tax credits issued on a 40-50% base recoup most, if not all of the investment through direct, indirect, and induced means. The study reveals that 80% of the tax credits issued under Act 27 are recouped by the government through taxes and IVU. The remaining 20% is recouped through intangible means such as the economic linkages with other industries (tourism), the creation and sustainability of small and medium sized businesses serving the industry, the promotion of cultural enterprises, international publicity for Puerto Rico as an investment destination, and knowledge transfer for local industry and talent. This means that 100% of the tax credits issued are recovered. Moreover, the study also revealed that during the period of 2016-2017 the total output generated by the film industry reached $252.9 million and resulted in the creation of 9,700 jobs (in FTE).
Maintaining a strong and stable tax incentive program and enough tax credits is necessary to maintain growth and effectively compete with other film destinations that offer substantial incentives. It is imperative that our government provides certainty and continuity to this incentive program so that the film industry can continue to build on the current momentum and the accomplishments of past years. Act 27 expires on June 30, so the time to act is now!