The U.S. Tax Cuts & Jobs Act (“TCJA”) was passed by the United States Congress in December 2018. It allows for a full (100%) motion picture tax write-off (regulated by passive investments) through the Providence Film Group (“PFG”) until 2027.
Providence Film Group (“PFG”) is legally structured to partner with certain accredited foreign venture capitalists who wish to make an investment into the US film industry, which will lead to permanent U.S. residency under the EB-5 Immigrant Investor Visa program. The EB-5 program is administered by US Citizenship and Immigration Services (“USCIS”).
PFG acquires, develops, maintains and exploits a varied slate of scripted and unscripted filmed entertainment content, from full-length feature films destined for international cinema and television distribution to micro-niche short films made to run the international festival circuits, garnering full niche attention before returning to exhibition on PFG’s own associated XMG video streaming network for longer-term recoupment models.
Qualified PFG investors receive an Executive Producer film credit on the selected projects they invest in, a return on their investment, a 100% US tax write-off and/or a US Green Card under the EB-5 Visa program.
Movie Production Incentives (“MPIs”) are tax benefits offered on a state-by-state basis throughout the United States to encourage in-state film production.
These incentives came about in the 1990s in response to the flight of movie productions to other countries such as Canada. The issue of runaway productions gained traction after Canada adopted its own production incentive program following US labor strikes. Ancillary incomes (hotel, restaurant, transport and tourism industries) were also affected by these runaways, although exactly how much is harder to determine. A 1999 study by The Monitor Groups estimated that in 1998, $10.3 billion was lost to the overall US economy due to runaway film productions.
Since then, US states, starting with Louisiana in 2001, have offered increasingly competitive incentives to lure productions away from other states. Los Angeles appointed its first “film czar” in 2013.
The structure, type, and size of the incentives vary from state to state. Many include tax credits and exemptions, and other incentive packages include cash grants, fee-free locations, or other perks.
Proponents of these programs point to increased economic activity and job creation as justification for the credits. Others argue that the cost of the incentives outweighs the benefits and say that the money goes primarily to out-of-state talent rather than in-state cast and crew members.
The structure, type, and size of the incentives vary from state to state. Many include tax credits and exemptions, and other incentive packages include cash grants, fee-free locations, or other perks.
Proponents of these programs point to increased economic activity and job creation as justification for the credits. Others argue that the cost of the incentives outweighs the benefits and say that the money goes primarily to out-of-state talent rather than in-state cast and crew members.
"Movie Production Incentive" is any incentive states offer filmmakers to encourage film production in-state. MPIs come in the following forms:
Tax credits can remove a portion of the income tax owed to the state by the production company, but since most production companies are limited-purpose business entities, they often incur very little tax liability, if any. The words "tax credit" or "tax rebate" in this instance does not mean a refund of taxes paid by the production, but is actually a cash award based on a significant percentage of the production's actual spend. That amount is awarded regardless of whether the entity pays taxes. As explained by Louisiana's Chief Legislative Economist: “It's got nothing to do with tax. We’re just using the tax-filing process and the Department of Revenue as the paying agent for a spending program. That’s what we’re doing.” Production companies must often meet minimum spending requirements to be eligible for the credit. Of the 28 states that offer tax credits, 26 make them either transferable or refundable.
Transferable credits allow production companies that generate tax credits greater than their tax liability to sell those credits to other taxpayers, who then use them to reduce or eliminate their own tax liability.
Refundable credits are such that the state will pay the production company the balance in excess of the company's owed state tax.
Cash rebates are paid to production companies directly by the state, usually as a percentage of the company's qualified expenses.
Grants are distributed to production companies by three states and the District of Columbia.
Exemptions from state sales taxes are offered to companies as an incentive. Many states offer exemptions from lodging taxes to all guests staying over 30 days in any event, but these MPIs are highlighted for production companies only.
An additional incentive states offer is to allow production companies to use state-owned locations at no charge.
Providence Film Group offers an EB-5-eligible investment in a slate of film projects to qualified foreign investors who want to work and live in the USA. The EB-5 investment fund is sponsored by a USCIS-designated regional center. An investment with PFG provides a direct route to permanent US residency for the investors, their spouse, and their children who are under 21 years old.
Qualified PFG EB-5 investors will have Executive Producer credits on the film project they invest in. Upon obtaining a US green card, the investor may reside in the USA. Investors do not have to be concerned with the daily business of the project they have invested in. After 5 years’ permanent residency they are eligible to become full US citizens. There are no sponsors required, and there is no application backlog to deal with.
[Currently, immigrant investors from the People’s Republic of China and the Socialist Republic of Vietnam are subject to visa retrogression, which is effectively a backlog. Persons born in other countries may also become subject to visa retrogression based on demand and USCIS policies.]
An EB-5 investment with PFG provides a lower immigration risk for investors. The regional center’s sponsorship of PFG enables indirect job creation as a result of the projects’ expenditures, which is a more certain method than direct job creation, which requires a company to create and sustain regular full-time positions for a minimum period.
The minimum investment amount is $1,050,000
The investor must demonstrate that their EB-5 Visa investment capital is from a lawful and documented source. Bank letters of statements of deposit are insufficient, the investor must also document the path of such funds from source, or demonstrate a “pattern of income” (tax records, for example, or savings and/or personal investment records) to prove credibly that the necessary funds were built up over time. Gifts to the investor are permissible, provided that documentary tracking of the source of such funds are also provided. Loans to the investor based on collateral provided by the investment project are not permissible.
The EB-5 Visa applicant’s capital investment must be truly at risk and not simply a loan. There can be no guarantees on an EB-5 Visa Investment, the investment must be ‘at-risk’ as per federal guidelines. There can be no mention of redemption rights or guarantees.
Guarantees of return of any capital are strictly prohibited, and if given negate the ‘at risk’ requirement of the EB-5 law and the investor’s petition will be denied. The entire capital must be at risk and therefore reserve accounts are also not allowed.
▪ Time Warner borrowed $100 million in EB-5 funds and $47.5 million in two separate offerings to underwrite movie and TV production.’
▪ Lionsgate Studios borrowed $66 million in EB-5 funds and $50 million in two separate offerings to underwrite movie production.
▪ Comcast Corporation borrowed $26 million to finance the construction of its headquarters.
▪ The majority of EB-5 investors who choose to pursue the EB-5 route are people who wish better opportunities for their children in the United States of America.
▪ People who have dependent children about to turn 21 years old and want to attend a US university to live and work in the US after graduation.
▪ People who have a difficulty in pursuing L-1 visas. Now, more than ever, L-1 visas are viewed more stringently than before, especially in countries such as China and Russia.
▪ People who cannot afford to wait too long under the current labor certification avenues to green cards.
▪ People who are denied non-immigrant visas on certain grounds.
▪ People who are denied EB-1 cases on Requests for Evidence (RFEs).
▪ People who are shut out of H-1B quota.
▪ Whose country is not an E-2 treaty country with the U.S.; and cannot pursue E-2 visa.
▪ Doctors who practically have no other ways to immigrate.
▪ People who might not want to pursue Direct, Individual EB-5 case for various reasons.
▪ Retirees.