Hi Folks,
This post is strictly business. But with more cross border film deals happening both in Bollywood and here in the US, some financial and fiscal guidelines to keep in mind. Firstly if there are any legal (actually this entire write up is on the premise that you are transacting the business legally) exchange of remmuneration i.e. monies paid to artist/crew/filmmaker by distributor, etc from India to the US or vice versa, it will be subject to witholding tax or what we in Mumbai call, TDS (tax deducted at source). However, since US and India have a dual tax treaty, this can be avoided, if you inform the remitting party that you will be responsible for the taxes and will claim the benefit of the Witholding law (this has to be given in writing), otherwise there will be the witholding, do expect less in hand than what was meant to be paid and rightly so.
Other important features
a) You can now “export legally” upto US 100,000.00 from India, for investing in films in the US (as in rupee can be sent in dollar form). Other guidelines in q & a form:
Payments are made to a foreign person/artist. Payees need to be aware of the types of income that are subject to withholding. They include rent, royalties, interest, dividends, license fees and U.S. source income that is not “effectively connected” with a U.S. trade or business. Persons making payments should either obtain representations from sellers that they are not subject to withholding or determine the proper withholding before any payments change hands. Payments may need to be reported on forms 1042, 1042-S or 1042-T.
A foreign person acquires stock in a U.S. film corporation(keep in mind every film is a seperate LLC or a LLP at the very least). U.S. corporations may be subject to reporting requirements in addition to withholding. A corporation that becomes at least 25 percent foreign owned may be required to file form 5472, Information Return of a 25 percent Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.
A foreign person becomes a partner in a U.S. film partnership. A U.S. partnership’s reporting requirements increase when it has foreign partners. For example, the partnership may be required to file form 8805, Foreign Partner’s Information Statement of Section 1446 Withholding Tax.
A U.S. person becomes a partner in a foreign film partnership. U.S. members of foreign partnerships, including LLCs that elect to be treated as a partnership or disregarded entity, cannot assume the partnership will file U.S. taxes. Thus, they may be required to file form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.
Transactions are denominated in a foreign currency. The number and complexity of book-to-tax adjustments increase with international transactions. A common example is when transactions are denominated in a foreign currency. Open transactions are recorded for book purposes but are not included in taxable income until the transaction closes.
A U.S. person controls or has an interest in a foreign bank account due to a multinational film project. U.S. persons with an interest in or control over foreign bank or other financial accounts may be required to file form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, if the accounts’ aggregate value exceeds $10,000 at any time in a calendar year. The form is an informational return only and does not generate a tax liability. But failing to file it can result in monetary and criminal penalties, says CPA Linda C. Maxwell-Fisher. “The Treasury Department, together with Homeland Security, is attempting to trace large sums of money of U.S. citizens and residents,” she said.
Property or currency is transferred into or out of the United States. Aggregate transfers of more than $10,000 may need to be reported on FinCEN form 105, Report of International Transportation of Currency or Monetary Instruments. Monetary instrument is defined broadly and includes signed checks where the payee’s name has been omitted. Property transfers may need to be reported on IRS form 8865, schedule O, Transfer of Property to a Foreign Partnership; form 926, Return by a U.S. Transferor of Property to a Foreign Corporation; or form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
Film operations are conducted in a foreign country. Businesses need to be aware of what types of activities subject them to another country’s filing and tax requirements. Even a small adjustment may avoid a tax liability.
International film transactions are conducted with a related person (transfer pricing). The definition of related party is broad, and IRC section 482 is not limited to situations where one entity owns more than half of another. Any type of transfer, including a transfer of intangibles, can be subject to transfer-pricing rules.
IRC = Internal Revenue Code aka like the Income Tax Act of India
Sincerely,
Vivek “saying cross border international project is easy, executing it is hard” Kumar
Donate
(3 votes, average: 4.67 out of 5)
Loading ...
Awesome Info… I would have spent days and countless phone calls to get all the info mentioned above. Thanks for this Vivek!
This is really useful information. Thank you.
vivek, just curious where you were able to dig up this information.. i’m sure many filmmakers would be thanking you right now…
striker, sources were mainly two a) I am the Chapter Lead of the California CPA Society’s Entertainment Special Interest Group, and b) also a member of the NJ based American Institute of Certified Public Accountants (AICPA). They keep sending me updates on the entertainment and overseas industry.
OZ, r u the one who writes the pfc buzz segemnt ??? If so, pls check out these reviews of Ta ra rum pum my bum…….
http://mid-day.com/entertainment/hindimoviesreview/2007/april/156318.htm
http://www.ibnlive.com/news/masands-verdict-tara-rum-pum/39292-8.html
http://www.mumbaimirror.com/net/mmpaper.aspx?page=article§id=30&contentid=20070428022510281dbedd702
Hi Vivek.
I am a Canadian citizen currently acting in films in Bombay. Is there a way that I can find out details between the two coutries? If you know someone in Bombay I would love to speak with him.
Hi Vipin,
Haivng been a former Canadian Permamnent Resident and having worked with Price Waterhouse Coopers in Toronto myself, I can tell you with some surety, that there is a dual tax treaty between Canada and India, hence doing away with the need for dual taxes. Given that the taxation in Canada is excessively high (at times 55%) I would recommend you filing your taxes in India, since you would be a Non Resident for Canada (less than 6 months of physical stay). Other useful places where you can get info on the tax benefits would be to visit the website of Ontario Film Commission, BC Film Commission, etc (as in each provice), they have a pretty detailed list over there. Also a visit to the Canadian High Commission in Mumbai (it used to be in Cuffe Parade), might be able to get all the answers to your specifc question on taxation or tax incentives, between Canada and India. What I do know is that it will rougly be modelled on the US, but more beneficial.
Thanks Vivek for your suggestions. I have a film coming out near Diwali. It is produced by Aamir and written and co-directed by Amol Gupte. Tare Zameen Par is the title and I have played one of the lead charactors in it. Hope you will like it. PFC is a great place and I love reading various posts here. Great incites and inspirations. Thanks for starting this wonderful like-mindedness.