We’ve shared how local production service companies (PSCs) are purpose-built to partner with foreign producers. The reputation of PSN Partners enables us to secure authentic filming locations while crafting countless efficiencies for a production plan reflected in a project budget packed with added value that a line producer can focus on managing. This article will delve into money matters.
Tax Transparency Builds Trust
Japanese filmmakers of multiple film and television projects have chosen PSN Mexico to service scenes for their productions. EP owner, Ari Garza, points to his company’s transparent management of Value Added Tax (VAT) as a distinguishing feature that earns their trust.
“Some local line producers and PSCs try to pass on the 16% VAT cost to the foreign production. That’s wrong,” explains Garza. “Our company pays all local vendor fees plus VAT, but we recover it eventually. We depend on solid accounting and administration teams to balance the books.”
Much of the same applies in Canada where PSN Partner and EP owner, Mathieu Dumont, says individual line producers aren’t set up to recuperate the 15% sum of federal and provincial taxes known as Goods Services Tax (GST). “They’re not registered as a Canadian company. They’re not going to be able to get it back. You need to be registered as a Canadian company to get those taxes back.”
Whether you call it GST in Australia, New Zealand, Malaysia, South Africa, India, and Brazil or VAT across Europe, PSN Czech Republic Partner, Nick Saward, says the math doesn’t add up for an individual line producer. “They cannot absorb VAT which we pay at 21%. The sum cost far outweighs their fee. Even if they could eventually recover it, the VAT would suck their operative cash flow dry.”
But what is now customary wasn’t always so. Production service companies in major film hubs worldwide have been at the forefront during decades, establishing common practices that foreign producers may now take for granted.
“When the local media leaked that Julianne Moore would earn millions of dollars during 5 weeks of filming the feature film Blindness with us in Uruguay, the local tax authorities called us for their share of her earnings,” recalls Nico Aznárez, EP and Owner at PSN Uruguay. “There’s no way we could go back to the foreign producers with this problem. Our company arranged meetings with the government to explain the situation, and the Minister granted us a special exemption at the time. What individual could achieve that?”
Back Office Expertise
Bureaucracy surrounds us. PSCs are prepared to manage it for foreign productions. PSN Greece Partner and EP owner, Andreas Tsilifonis, points to payroll as an insurmountable task for any individual line producer. “The hiring process is very complicated in Greece. Imagine a 9 pm request to payroll 50 people by 6 am the next day – which we have done -, and you can imagine why the rapid-response capacity of a specialized staff is essential.”
Preparation and execution recently earned Andreas and his team a rave review from a Warner Bros. cost controller during on-site inspection. “She said our approach to cost control is so thoughtful and organized, even better than the system at Warner Bros.,” glowed Tsilifonis, recalling her surprise. “She said ‘It has taken me just one hour to review what I’d allowed four days to do. Now I get three days vacation.'”
“We know what the foreign producers want,” reasons PSN Egypt Partner and EP owner, Amin el Masri. “Paramount and Skydance expected to land in Egypt and find clear, strict, transparent financial procedures. But they would never find this with an individual here. You won’t have corporate bank accounts, you won’t have auditing systems, you won’t have any of this. It’s going to be what’s called very, very local. You know what I mean? Egypt has been a cash based industry for many years. Our company has been at the forefront of developing it to meet the expectations of foreign studios and streamers.”
Keep Your Eye On The Line Items
The PSN Costa Rica service company helmed by Justin Bird brings an uncommon level of transparency to budgeting film support in the country. It recently won his PSC back-to-back projects with U.S. clients.
“A lot of companies and individual line producers in Costa Rica pad their rates,” explains EP owner, Bird. This has led to a minefield where foreign producers fear a misstep. “It comes down to due diligence. Foreign producers can seek out those who are qualified to work at their standards and deliver on their expectations.”
The repeat performance of PSN Partners above and beyond the expectations of foreign producers is not exclusive to commercial projects. The PSN Canada team found department heads that worked on series like The Last of Us and the latest Ghostbusters feature films did not expect the level of diligent cost control they’ve fine-tuned on commercials.
“We always try to find efficiencies beyond a signed budget,” affirms Dumont at PSN Canada. “We’re not just renting and facilitating stuff. We take pride in saving costs for foreign producers. I’ve surprised some department heads when asking them to justify overrages. Seems they’re used to freelance line producers who don’t stress about costs on those big projects. They figure the studios and streamers can cover the extras on the back end. That’s where I have to ask, ‘what client isn’t happy when money is returned to them?'”
Tapping Into Film Incentives
The money returned to the producers of film and television projects is a deciding factor in choosing where to film abroad. Production service company film support is critical – even essential – for foreign film and television projects to secure local tax rebates or refunds that lower their production costs.
PSN UAE Partner and EP owner, Shane Martin, says it’s a non-starter to think one will access the local film incentives without a company structure. “The authorities are very careful here. They don’t want anybody filming who hasn’t established a company that ticks all the boxes. You come to accept that you need to work within the way they want you to work.”
Funds earmarked for filmmakers are subject to the criteria of national and regional authorities across the planet. Put simply by PSN Thailand Partner and EP, Fred Turchetti, “The auditing that happens with film incentives of any type cannot be in the hands of a foreign entity because the foreign entity doesn’t respond directly to local law.”
A local PSC is a requisite to access the tax rebate in Spain. The production service company forms a special purpose vehicle (SPV) with a foreign production entity. The tax rebate is returned on that company’s corporate tax filing in Spain.
“It is completely out of the question for an individual line producer to stand in place of a company,” declares Yousaf Bokhari, PSN Spain (Palma Pictures) Head of Film & Television.
“There’s no real way of circumventing it if you want to take advantage of the very generous tax incentives that we have,” concurs PSN Ireland Partner and EP, Dara McClatchie.
“The Irish tax incentive can only be drawn down by what we call a designated activity company. And a DAC can only be established by a 100% owned Irish company,” elaborates McClatchie. “The Irish company must have a history. It cannot be created off-the-shelf, not fly by night. Obviously, there are very strict contracts drawn up establishing responsibilities, and the financing of the DAC because the money comes in from the studio or streamer. It is all very well set-up and regulated. And then it’s all wound up with the final accounts audit and once the final bit of tax incentive money comes through. Starts and ends with a singular production. All very neat.”
Ireland pays up to 90% of the corresponding tax credit to filmmakers upon financial closing of a qualified production. That’s exceptional.
As most countries take from 6 to 18 months to pay back funds after receiving a final cost audit for review, PSCs have been known to bridge-finance the anticipated incentive. PSN Croatia stepped in to provide this form of support to the producers of Netflix series, Medical Police.
“Studios don’t really need that,” acknowledges PSN Croatia Partner and EP owner, Ivan Petrusic. “But restoring cash flow for an indie producer can propel them straight into post-production. We’re here to help!”
The Production Service Network Difference
Throughout this series we’ve focused on distinguishing the advantages filmmakers will find by hiring production service companies to execute physical production in foreign film hubs worldwide. Their reliance on individual line producers when producing any project of scale is best done within the local company structure of a PSC.
PSN Partners are an exclusively-vetted network of production service companies providing added value worth significantly more than the company fee they apply to their services. Reach out to discuss the difference we can make for your next project.
Read more insights in our series of articles:
Line Producer or PSC – A Rethink (from the UK perspective)
PSCs Cut The Friction When Filming Abroad
Trusting A Local Partner In The Production Trenches
Access Is Everything In Foreign Film Destinations
A Safe Landing – The PSC Path from Pitch To Wrap
