By Mauricio Vedovato and João Paulo de Seixas Maia Krepel (guest bloggers from Lilla, Huck, Otranto, Camargo Advogados)

Non-Brazilian legal entities might be entitled to use up to 70 percent of the Withholding Income Tax (WHT) due in Brazil to develop and/or co-produce Brazilian independent feature films, short films, documentaries, TV movies and TV series. Qualifying entities distribute films in Brazil and/or develop content related to TV shows, films, events (including sports events involving Brazilian teams or individuals) and/or other audiovisual works of authorship through broadcasting or cable TV in Brazil.

The tax incentive mechanism is established by the Brazilian Audiovisual Law (Law no. 8.685/93), where Section 3 applies to entities that distribute films in Brazil and Section 3-A applies to entities that develop content as defined above. The WHT rates due are 25 percent for entities that distribute films in Brazil and 15 percent for those that develop content.

So, in practical terms, if a content distributor is entitled to $100 in revenue, it might invest up to $17.50 in new content and pay WHT of only $7.50 (instead of paying $25.00). The same rationale works for entities that distribute content, which will be able to invest up to $10.50 of $100 in revenue in new content and pay WHT of only $4.50 (instead of paying $15.00).

Usage of these tax incentives mechanisms allows the investors (the non-Brazilian entities) to own up to 49 percent of the copyrights pertaining to the independent films, short films, documentaries, TV movies and/or TV series produced. So, through these mechanisms the entities may use WHT to produce new content in Brazil, generating possible new profits.

Moreover, entities that develop content and use the Section 3 mechanism are also exempt from paying the Contribution for the Development of the Brazilian Film Industry (Condecine), which is 11 percent of the amount remitted from Brazil.

In 2014, more than $50 million was invested in the development and coproduction of content by non-Brazilian legal entities, which demonstrates the relevance of this tax incentive mechanism. Although relatively simple to use, it is important that investors:

  • Fulfill all the Brazilian Film Agency requirements (Ancine)
  • Make sure that the distribution agreements entered into with the local entities (e.g., broadcasters and cable TV) do not entitle them to use the incentives of Sections 3 and 3-A
  • Execute coproduction agreements with the local independent producing companies.

About Mauricio Vedovato (Partner, Lilla, Huck, Otranto, Camargo Advogados)

Mauricio Vedovato is partner and Head of the Entertainment, Media, and Sports Law department of Lilla, Huck, Otranto, Camargo Advogados. Maurício advises producers, distributors, investors, artists, agents, advertising agencies, cable TV companies, radios, Internet companies, apps development companies, sports leagues and athletes, among others, both within Brazil and in cross-border matters. Mauricio is also a film producer, partner of SB Films LLC, and teaches Sports Law at Universidade Nove de Julho (Uninove) in Brazil.

Mauricio holds a Masters in Law degree (L.L.M.) in Entertainment and Media Law and Policy from the University of California, Los Angeles, a Masters in Communication Sciences degree from the Arts and Communications School of São Paulo University, Brazil, and a JD degree in Law from the Law School of São Paulo University. He is based in São Paulo, Brazil.

About João Paulo de Seixas Maia Krepel (Partner, Lilla, Huck, Otranto, Camargo Advogados)

João Paulo Krepel is partner and co-head of the tax department of Lilla, Huck, Otranto, Camargo Advogados. He advises clients in all aspects of tax consultancy, planning and litigation, with a special focus on transactional matters and corporate reorganization. For the entertainment business he has advised producers, distributors, investors, artists, agents, advertising agencies, cable TV companies, radio stations, Internet companies, apps development companies, sports leagues and athletes, among others, both within Brazil and in cross-border matters.

João Paulo holds a Masters in Law degree (L.L.M.) in Corporate and Tax Law from Columbia University, New York, a Master’s Degree of Economics from Fundação Getúlio Vargas–FGV-SP and a JD degree in Law from the Law School of São Paulo University. He is based in São Paulo, Brazil.

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