A Tax Incentive for International Film Distribution

A company registered in the International Business Activity (IBA) program, formerly known as the International Financial Activity program, qualifies for a full refund of provincial corporate income tax, currently 11% in British Columbia, on revenues derived from film and television distribution.

An international film and television distribution business is a business carried on by the corporation through a fixed place of business in British Columbia, of which all of the revenue is derived from one or more of the following transactions:

1. selling, assigning or licensing rights to a non-resident person to distribute outside of Canada a film or television production, other than a production that is pornography, or

2. selling, assigning or licensing rights to a non-resident person to exploit outside of Canada any thing related to the production.

Income derived from distributing films and television programs outside of Canada quali-fies for favourable tax treatment in the IBA program.

For companies registered in the IBA program, revenue from these activities qualifies for a refund of B.C. corporate income tax (the general corporate income tax rate in British Columbia is 10%).

Note: In March 2010, the B.C. government signalled its intention to expand film and television distribution to digital media and allow digital media distribution as a qualifying activity. This provision has been announced but the regulations to make the change effective have not yet been published.

Employees of registered companies may qualify for provincial income tax refundsA company in the IBA program can register employees as International Business (IB) Specialists

• Registered IB Specialists can claim a refund of their British Columbia tax on qualifying employment income. The refund is 100% for Years 1 and 2; 75% for Year 3; 50% for Year 4; and 25% for Year 5.

• To qualify, the employee must earn a minimum annual compensation of $100,000.

• The IB Specialist must be transferred from outside Canada to provide specific expertise and have an employment agreement in place before arriving in Canada.

• The IB Specialist must spend at least 70% of his or her time on the qualifying international financial business.

• No time requirement applies to employees in administrative support and back-up office services.

• For a related group of program participants, only four employees in administrative support and back-up office services may qualify.

A company in the IBA program can register the key decision maker(s) as an Executive Specialist

• Registered Executive Specialists can claim a refund of British Columbia tax on qualifying employment income. The refund is 100% in Years 1 and 2; 75% in Year 3; 50% in Year 4; and 25% in Year 5.

• To qualify, the employee must earn a minimum annual compensation of $250,000.

• This compensation must be included in calculating the program participant’s international financial business income.

• For a related group of program participants, only two Executive Specialists may qualify.

• The employee must have been a non-resident before entering into the employment contract. The employee must apply for registration by December 31 of the year in which he or she becomes resident of Canada.

• The employee, and any person related to him or her, must deal at arm’s length with the registered corporation.

Tax credit programs have no production, corporate, or annual cap.

Fact Pattern• Parentco establishes a subsidiary in British Columbia to

distribute film and television product.

• Aco registers in the IBA program.

• The income earned on distributing films to non-residents of Canada is eligible for a provincial tax refund.

Analysis• Aco is eligible to apply for registration in the IBA program since

it will be carrying on an “international financial business”, was incorporated in Canada and has a permanent establishment in British Columbia.

A film distribution operation can increase profits

• Aco is required to become a member of AdvantageBC in order to remain registered.

• Aco is carrying on an active business of distributing films to non-residents.

• Aco will be eligible to claim a refund of its B.C. corporate income taxes paid in respect of its international financial business.

Production ServicesFederal

• The Production Service Tax Credit (PSTC) is 16% of qualified Canadian labour expenditures.

Provincial-Production Service Tax Credit (PSTC)• The Production Services Tax Credit (PSTC) is a labour-based tax

incentive that provides refundable tax credits to Canadian or international film and television production corporations that have incurred costs in British Columbia.

• The company does not have to be a Canadian-owned corporation, and there is no requirement that the production company have an interest in the copyright.

• The program is available to international or Canadian productions produced in British Columbia.

Basic Tax Credit• 33% of qualified B.C. labour expenditure Regional Tax Credit• 6% of qualified B.C. labour expenditure Distant Location Regional Tax Credit• 6% of qualified B.C. labour expenditure. Digital Animation or Visual Effects (DAVE) Tax Credit• 17.5% of the B.C. labour expenditure directly attributable to

prescribed DAVE activities. (The DAVE credit may be claimed even if the production was not physically filmed in B.C.)

Generous refundable and bankable tax credits available for production

International co-productionFederal

• The Canadian Film or Video Production Tax Credit (CPTC) is 25% of qualified labour expenditures for production of a Canadian film or video production or an international co-production.

Provincial-Film Incentive B.C. • Film Incentive BC (FIBC) is a labour-based tax incentive that

provides refundable tax credits to Canadian controlled production companies or an international co-production.

• Eligible applicants are film, television and animation production corporations with a permanent establishment in B.C. that are owned and controlled by Canadians

Basic Tax Credit• 35% of qualified B.C. labour expenditure Regional Tax Credit• 12.5% of qualified B.C. labour expenditure Distant Location Regional Tax Credit• 6% of qualified B.C. labour expenditure. Digital Animation or Visual Effects (DAVE) Tax Credit• 17.5% of the B.C. labour expenditure directly attributable to

prescribed DAVE activities. (The DAVE credit may be claimed even if the production was not physically filmed in B.C.)

Training Tax Credit• 30% paid to an individual in an approved training course.

The following tax credits are available to support production in British Columbia: 1) Services, which assist production where the copyright is not owned by a Canadian company; and 2) Co-production, where the copyright is jointly held by companies engaged in an international co-production.

• B.C.’s geographical advantages include its proximity to Los Angeles, which allows real-time sharing of information and easy travel access, natural scenery, and the wide variety of natural and urban shooting locations available in the province

• The province is equipped to handle every aspect of production. B.C. has a sophisticated industry infrastructure from purpose-built stages to state-of-the-art post-production and visual effects facilities.

• B.C.’s workforce is both skilled and experienced in all creative and technical aspects of film and television production

• B.C.’s mild west coast climate allows for year round filming

• Competitive taxes and incentives

British Columbia’s Competitive Advantages• Economic, political and social stability

• Low cost of doing business

• Extensive tax treaty and co-production treaty network

• All credits are fully refundable and can be used for bank financing

• Sophisticated film financing, legal and accounting resources.

• Stable banking industry

Suite 3093, Three Bentall Centre ~ 595 Burrard StreetVancouver, British Columbia ~ V7X 1C4 ~ Canada

www.advantagebc.ca

Bruce Flexman, MBA, FCAPresidentT: 604.683.6627F: 604.683.6646E: bflexman@advantagebc.ca

Jimmy MitchellVice President, Business DevelopmentT: 604.558.1007F: 604.683.6646E: jmitchell@advantagebc.ca

Contacts at AdvantageBC

Further InformationAdvantageBC International Business Centre • Vancouver (formerly the International Financial Centre British Columbia) was established in 1986 to attract international business to British Columbia by promoting the legislated tax incentive available through the International Business Activity (IBA) program. AdvantageBC communicates the tax incentive program as well as the many advantages British Columbia offers as a location for corporate investment, including an educated and multilingual workforce, an outstanding telecommunications infrastructure, clean and competitive energy, and a high quality of living. For further information, please visit the website of AdvantageBC at www.advantagebc.ca.

The International Business Activity (IBA) program is administered by British Columbia’s Ministry of Finance. To qualify, companies must meet certain criteria; please refer to the Ministry’s website at www.sbr.gov.bc.ca/business/Income_Taxes/International_Business_Activity/iba.htm for details.

The information contained herein is provided for convenience and guidance only and is not a replacement for the legislation. Businesses considering accessing the benefits under the International Business Activity Act (IBAA) should consult with their professional advisors on the applicability of the legislation to their particular circumstances.

October 2013