Spanish media production and performing arts: a tax reward for supporting culture

Effective from January 1 2021, the Spanish Corporate Income Tax Law was amended to introduce a mechanism allowing taxpayers who participate in the financing of film productions, audiovisual series, and live performing arts and music shows to apply the tax credits generated by the producer. This allows a return to be obtained that is legally limited to 20% of the amount of the financing provided (gross return).

Contrary to the general rule that establishes the unavailability of tax credits, this mechanism allows, subject to certain requirements and limits, the tax credit generated by the producer to be transferred to the financer. The tax credits resulting from the activity to be promoted can therefore be used by a taxpayer (the financer, in this case) and this gives the taxpayer who is carrying out the activity – i.e., the producer – access to additional funds potentially needed for the production.

The novelty of this mechanism created initial uncertainties as to its correct application, which, in the absence of specific doctrine, had to be resolved by applying the general logic of the tax and resorting to the interpretation of similar mechanisms that, in previous years, had been incorporated into provincial legislation (the Basque Country and Navarre).

However, the Spanish Directorate General of Taxes (DGT) has carried out intense interpretative work since the mechanism has been in place, which has clarified most of the doubts and provided a framework of legal certainty that makes this incentive attractive and is leading to a significant increase in its use. Two notable issues that have been resolved are:

• The financial role of funds provided; and

• Guarantees for the financer.

The rules that apply to the mechanism initially left doubt as to how to interpret the financial role to be played by any funds provided.

In this regard, a legislative reform introduced in December 2022 clarified that as long as the funds are provided before obtaining the nationality and cultural character certificates necessary for the tax credit to be generated (the time limit established by the rules), they may be provided before or after the producer incurs the production costs. This seemed to open the door to the funds being able to be used to settle trade payables; i.e., accounts payable previously incurred for services received.

Elaborating on this financial role of the funds provided, at the end of 2023 the DGT issued binding ruling No. V2535-23, which, in addition to expressly confirming that such contributions could be used to cover trade accounts payable, clarified that the financing may also be used to settle financial liabilities incurred to cover all, or part of, the costs of production.

Closely related to the financial role of the funds explained above, financers were requesting, as security for their contribution, the provision of guarantees covering at least the period between the disbursement until completion of the production and the relevant certificates being obtained. This generated costs that, although initially assumed by the producer, ended up being shared with the financer via a reduction in the profitability offered.

On September 6 2024, in binding ruling No. V1928-24, the DGT clarified that the contribution of funds to an escrow account whose release (access by the producer) is conditional on obtaining the relevant certificates is a valid contribution for the purposes of the generation and application of this mechanism, even if the producer's effective access to the funds is deferred until the certificates are obtained.

These examples of interpretations issued by the DGT allow for a more precise delimitation of the material scope of the mechanism, defining a sphere of action endowed with greater legal certainty, flexibility, and simplicity. This makes the incentive more attractive for producers, who can exchange potentially unusable tax credits for fully available cash funds, and financers, who can obtain a return on their cash surpluses within a better-defined legal framework.

In this context, the instrument is an effective government mechanism for promoting a key cultural activity such as the one underlying the tax credit.