RIO DE JANEIRO, BRAZIL – How come Eiza Gonzales has a frustrating trip to Peru? Why did Michael Bay have to insist so much on shooting “Transformers” in Machu Picchu? Will Netflix film again in Puno after “Until We Meet Again”? But above all: when will Peru, in addition to being one of the favorite destinations for tourists, also become a film location for more international production companies, and will it place the Peruvian audiovisual sector in the position that other countries in the region are already fighting for? The answer lies in two urgent matters, which this national market has not yet reached: a Film Commission and tax incentives.
A Film Commission is a work team that supports a foreign production company in its arrival and shooting in the country so that it can carry out its project smoothly; it also has a budget assigned to command the promotion of national film locations and manage the access of these companies when they use them. Tax incentives are money refunds, exemptions, and other financial benefits that audiovisual companies like Netflix and Amazon seek every time they want to film in a territory. The former also positions the country as a great filming set, and the latter is an attractive mechanism for large production companies in Latin America.
It is possible for a prestigious production company to demand US$220 million of investment in a giant project, according to the 2020 study “The Impact of Film and Television Production on Economic Recovery from COVID-19″. Of that budget, in transportation to and within the filming location, in lodging and catering hired from local companies, the audiovisual company invests US$14.5 million. And this is only one production. How many could there be per year in Peru? A pending question. But, because there are no attractive mechanisms in the eyes of audiovisual companies from abroad, other regions often take the biggest fish.
One example. Miguel Valladares, CEO of Tondero, the Peruvian production company that worked with Paramount and Telemundo Global Studios, will visit Cusco this week, where he will be scouting for an upcoming film with another important international production company, which for now maintains a confidentiality contract and its name cannot be mentioned.
“It is a film of these sagas of the most important in the world that wants to come to Peru. We will shoot some very particular things, but the rest will be shot in Colombia when the whole film should have been shot in Peru. Unfortunately, they are not doing it in Peru because there are no tax incentives in the country to attract them. So, what they have done is fake Peru in Colombia, and they are only going to shoot some exteriors here. It puts all Peruvian production companies out of competition in the international market,” Valladares told Saltar Intro.
“One of the big problems we local production companies face in attracting big international productions to Peru is the lack of economic incentives from the State, either through tax credits or reimbursement of expenses,” Peruvian film director and producer Ani Alva Helfer tells Saltar Intro.
According to the 2016 “Guide for Film Commissions in Latin America,” there are at least six fiscal and non-fiscal incentives for audiovisual production, such as tax credits, refunds, and loan programs. But, in 2020, the Ministry of Culture unsuccessfully promoted an opinion in the Committee on Culture and Cultural Heritage where mainly two modalities of incentive for foreign investments were proposed: cash rebate (cash refund) and tax credit—focusing on the second one.
CASH REBATE
“One option is that some states give you back the money of your investment (as a producer), which may be difficult to implement in Peru. In other words, you, the producer, spent on goods and services here, you bought soda for the technical team, US$100, and I, the State, give you money back in cash. In Europe, you spend a large amount, but being a foreigner, because you are not domiciled, you should not pay VAT. They give you back the VAT and give it to you in money at the airport. It is a figure that does not exist so clearly in Peru,” says Santiago Alfaro, former general director of the General Directorate of Cultural Industries and Arts of the Directorate of Audiovisual, Phonography and New Media (DAFO).
TAX CREDIT
“The Ministry of Economy and Finance (MEF), in general, has a policy of not encouraging exonerations. In this case, the tax credit mechanism is quite particular because it would be for non-domiciled persons. The option is that you, the producer, certify with invoices you have spent US$100, then I, as the State, am going to tell you ‘I am going to give you a tax credit of US$25, which you can transfer to a national company’. Then, you transfer those US$25 to another Peruvian company, which passes it on as an expense, and already pays less income tax. That’s how it works because it is clear that a foreign company does not have to pay that tax,” Alfaro adds.
For now, very particular financial benefits are given through conventions or agreements for co-production of Peruvian projects with other Latin American countries, as reported to Saltar Intro by the current general director of the General Directorate of Cultural Industries and Arts of the Directorate of Audiovisual, Phonography and New Media (DAFO), Laura Martinez.
“El niño probeta” (2019) is a co-production between Atefilms CIA (Ecuador) and Cinelibre Producciones Fdez. & Asociados (Peru), which was made possible thanks to the agreement between the two countries under the Ibermedia program. The total number of projects benefiting from Peru last year, as the majority country, amounted to more than US$301,000. Other countries with which the Ministry of Culture (MINCUL) signed agreements for co-productions are Argentina, Bolivia, Cuba, Chile, Mexico, Portugal, Venezuela, Brazil, Colombia, Costa Rica, Spain, Nicaragua, Ecuador, Panama, Paraguay, Uruguay, Dominican Republic, Puerto Rico, Guatemala, El Salvador, and Honduras. Although this opens the framework for action, many projects still have low and medium budgets.
“Peru does not have a Film Commission, which could grant tax incentives and direct economic stimuli. We have to make Peru attractive,” said Laura Martinez.
On the “Film in Peru” website, there are small photographs of Peruvian locations such as the City of Cusco or the Quistococha Tourist Complex (Iquitos) that the Commission for the Promotion of Peru for Export and Tourism (Promperu) has been presenting for some years now to promote the country as a filming location.
“A company comes to film and has to have all this scenery, but it is also important to see other things outside of filming that they can find. I don’t know, for their cabs, or gastronomy facilities, tourism, hotels, then it is important for the staff where they are going to film. That is also what the country offers. What Peru is working on, we are aware, is to give additional advantages, especially tax issues”, says Amora Carbajal, executive president of the Commission for the Promotion of Peru for Exports and Tourism (Promperu).
Considering that large producers are demanding, while a production company in Peru may need one person for a single job, for example, Hollywood will need ten more to accomplish the same task in the makeup department of a film. Spain is aware of this, where there is not only a national Film Commission that assists and commands the entry of mega-production into the country, but also some of the 17 autonomous communities, the regions, and the municipalities also participate in the task.
Spain’s Deputy Minister of Culture and Tourism, Daniel Martinez, spoke to Saltar Intro about a country with 30% tax benefits up to an investment of the first million euros. It is an industry that survives with several film commissions, each with different tax incentives. For example, in the Canary Islands, the deduction is 50% of the first million euros and 45% above that amount up to a maximum of €10 million (US$10.5 million) per project. But, in Navarra, it reaches 35% in a “mixed tax refund modality”, which also includes a tax credit, according to information from Shooting in Spain. But, in addition, the audiovisual sector competes with the seductive 30% cash refund of the French commission, Film France, and other European incentives, such as those of the United Kingdom or Portugal.
“A Film Commission is indeed a useful tool, but you have to think this is a pure business activity. There are several (Spanish commissions), and each receives an investment. There are three decisive factors to attract audiovisual production to any market talking about big productions. Connectivity, good services, and tax benefits are generating a notable increase in that whole market in Spain,” notes Daniel Martínez.
“Number one, logistics. You need connectivity, in terms of sufficient transportation, and there, well, each place has a different one: air, rail… The second has to do with the means of production you need for any major project because no major production company moves from its corporate offices with 100% of the technicians it uses. And the third has to do with the source of results of the project itself, with the tax facilities,” he adds.
Another example is Colombia. Within the framework of its Orange Economy Policy, it has drawn up a plan to promote the audiovisual arts industry. With the modality of Audiovisual Investment Certificates, it has achieved more than US$898 billion in investment and 10,600 jobs in the development of 39 projects that benefited from the tax incentives it offers as an industry. The country offers a cash rebate per application of between 20% and 40% in investment, according to information from the organization Proimágenes Colombia. In Peru, a 20% tax credit was proposed in 2020.
For Netflix, Colombia is “the country with the best incentives for audiovisual production in Latin America,” according to information published by the official website of Economía Naranja. “Pálpito”, “Ritmo Salvaje”, “Goles en Contra”, “Descárate con la Azcárate”, “Juanpis Gonzáles”, “Diomedes” are some of the series for which the main streaming brand has bet to film in that country.
Likewise, the Dominican Republic offers a 25% tax credit up to certain expenses of US$500 billion on behalf of the company, as specified in the regulation of the country’s government portal. There is a 25% reimbursement for eligible expenses in Uruguay, among other benefits. And in Mexico, there is the ATA carnet, a “goods passport” for importing audiovisual equipment that companies carry with them to film. In Peru, recently, Michael Bay and other foreign directors and producers no longer needed to enter the country with a journalist or tourist visa but with the new “Artist Visa”. It was a recent achievement that made life easier for Paramount and other international production companies.
Peru has emerged as one of the most attractive countries for foreign audiovisual multimillionaires in the last year. But it can be even more so. The eyes of the world are watching, and the most influential brands are knocking on the door. But are local production companies ready for when it opens? Hopefully, yes, despite the obstacles that the giants may not want to go through.
With information from El Comercio