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Practical Manual for Companies 2023.

Deduction applicable to the taxpayer who participates in the financing of Spanish film productions and live shows (art. 39.7 LIS)

a. Scope

With effect for tax periods beginning on or after 1 January 2021, the taxpayer who participates in the financing of Spanish productions of feature and short films and audiovisual series of fiction, animation, documentaries or production and exhibition of live performing arts and musical shows made by other taxpayers, may apply the deductions ## provided for in sections 1 and 3 of article 36 of the LIS , under the conditions and terms indicated therein, their amount being determined under the same conditions as they would have been applied to the producer, provided that they have been generated by the latter. 

The provisions of article 39.7 of the LIS will not apply when the taxpayer participating in the financing is linked , within the meaning of article 18 of the LIS, with the taxpayer who generates the right to the deduction provided for in sections 1 and 3 of article 36 of the LIS.

The application of the deduction by the taxpayer participating in the financing will be incompatible , totally or partially, with the deduction to which the producer would be entitled by application of the provisions of sections 1 and 3 of article 36 of the LIS.

b. Requirements

  1. Contribution of amounts intended to finance all or part of the production costs, as well as the expenses for obtaining copies, advertising and promotion by the producer up to the limit of 30 percent of the production costs, without acquiring intellectual property rights or other rights with respect to the results of the productions or shows, which must in all cases belong to the producer.

    The amounts to finance the production costs may be contributed at any stage of production , before or after the producer incurs the aforementioned production costs, and until obtaining the certificates of nationality and the certificate accrediting the cultural character in relation to its content, as well as the one obtained by the National Institute of Performing Arts and Music, as the case may be. The amounts to finance the expenses for obtaining copies, advertising and promotion by the producer referred to in the first paragraph of article 39.7 of the LIS may be contributed before or after the moment in which the producer incurs the aforementioned expenses, but never after the tax period in which the producer incurs them.

    Keep in mind:

    The direct promotional costs referred to in article 36.3 of the LIS must be understood to be included within the expenses for obtaining copies, advertising and promotion.

  2. Subscription to a financing contract

    The producer and the contributors who participate in the financing of the production must sign at any phase of the production one or more financing contracts in which the following details are specified, among others:

    • Identity of the contributors involved in production and financing.

    • Description of production.

    • Production budget with a detailed description of the expenses and, in particular, those that will be incurred in Spanish territory. The budget for the costs of obtaining copies, advertising and promotion by the producer will also be included, with a detailed description of those to be carried out in Spanish territory.

    • Method of financing of production and expenses for obtaining copies, advertising and promotion to be borne by the producer, specifying separately the amounts contributed by the producer, those contributed by the taxpayer who participates in its financing and those corresponding to subsidies and other support measures.

  3. Communication to the Tax Administration

    Furthermore, in order to apply this deduction, the taxpayer participating in the financing must present the financing contract and certification of compliance with requirements a') and b') of section 1 or requirement a) of section 3 of article 36 of the LIS, as appropriate, in a communication to the Tax Administration , signed by both the producer and the taxpayer participating in the financing of the production, prior to the end of the tax period in which the latter is entitled to apply the deduction.

c. Amount of deduction

The taxpayer who participates in the financing of the aforementioned productions may apply the deduction in his/her self-assessment, determining its amount under the same conditions as those applied to the producer, provided that they have been generated by the latter.

However, the maximum amount of the deduction may be applied by the taxpayer participating in the financing will be the result of multiplying by the amount of the sums that the latter has contributed to finance the production costs or the expenses for obtaining copies, advertising and promotion at the expense of the producer referred to in previous paragraphs. The excess deduction may be applied by the producer who has generated the right to it.

Joint limit:

The amount of the deduction applied by the taxpayer participating in the financing must be taken into account for the purposes of applying joint limit 25 percent established in article 39.1 of the LIS. This limit will be raised to 50 percent when the amount of the deduction provided for in sections 1 and 3 of article 36 of the LIS, which corresponds to the taxpayer who participates in the financing, is equal to or greater than 25 percent of its full share reduced by deductions to avoid international double taxation and bonuses.

d. Filling in form 200

The taxpayer who participates in the financing of the production and wants to prove his right to apply the deduction of sections 1 and 3 of article 36 of the LIS , must first mark the box [00074] "Taxpayer who finances productions with the right to the deduction of art. 36.1 and 36.3 LIS" on page 1 of form 200.

In addition to checking box [00074], the taxpayer who participates in the financing of the production, in order to apply the deduction provided for in sections 1 and 3 of article 36 of the LIS , must enter in section "Additional information on Spanish film productions and live shows" on page 18 of form 200, the NIF of the taxpayer who carries out the production or show that he finances.

Regarding the settlement of the tax, the taxpayer who participates in the financing must complete the boxes [02462] «2023: Funder: Spanish film productions» and [02455] «2023: Funder: live shows of performing and musical arts" on page 17 of form 200 when in the tax period starting in 2023 has consolidated the right to apply the deduction of article 36.1 or 36.3 of the LIS, respectively. This amount may not be included in the model 200 submitted by the producer, that is, the producer in the boxes [00807] «2023: Producer: Spanish film productions» and [01075] «2023: Producer: "live shows of performing and musical arts" on page 17 of form 200, you may only complete the amount of the deductions of articles 36.1 and 36.3 of the LIS that will be applied in your settlement, as a producer, when you meet the requirements regulated in the aforementioned articles to be able to do so. In addition, the taxpayer participating in the financing must complete in boxes [02463] and [02456] on page 17 of form 200, the amount of the deductions of articles 36.1 and 36.3 of the LIS that he applies in his liquidation for having complied with the requirements provided for in the aforementioned articles. Finally, boxes [02464] and [02457] on page 17 of form 200 will be completed for the amount resulting from reducing the deduction pending or generated in 2023 by the amount of the deduction that has been applied in the settlement of the tax period being declared.

Remember:

When all or part of the production costs, as well as the expenses for obtaining copies, advertising and promotion charged to the producer have been financed by other taxpayers, the producer must mark in the tax period in which he applies the deduction provided for in sections 1 and 3 of article 36 of the LIS, box [00044] "Taxpayer who applies deductions of art. 36.1 and 36.3 LIS with financing carried out by other taxpayers" on page 1 of form 200.

Example

Company "A", whose tax period coincides with the calendar year and whose net turnover did not exceed 20 million euros, carries out an activity for which it is entitled to apply a deduction for research and development expenses during the years 2022 and 2023. Furthermore, the company has financed the production of a Spanish film for which it can apply the deduction for investments in Spanish film productions (article 36.1 LIS ) in accordance with the provisions regarding financiers of film productions in article 39.7 of the LIS. Company "A" that participates in the financing is not linked to the producer that generates the deduction of article 36.1 of the LIS. Production on the film is set to end in 2023.

The data of company "A" to be taken into account in its Corporate Tax settlement are the following:

Exercise 2022

  • Full share: 36,000 euros
  • R&D deduction (art. 35 LIS): 3,000 euros
  • Film production data:
  • Total cost for fiscal year 2022: 100,000 euros (45,000 euros for the producer and 55,000 euros for the financier)

Exercise 2023

  • Full share: 50,000 euros
  • R&D deduction (art. 35 LIS): 10,000 euros
  • Film production data:
  • Total cost for fiscal year 2023: 70,000 euros (55,000 euros for the producer and 15,000 euros for the financier)

Liquidation of Corporate Tax 2022

First of all, company “A” must take into account the deduction amounts that entitle it to raising the deduction limits.

Checking the limit of article 39.1 of the LIS:

R&D deduction (art. 35 LIS): 3,000 euros

10% (36,000) = 3,600 euros

3,000 euros < 3,600 euros, so you must apply the joint limit of 25%:

Limit art. 39.1 LIS: 25% (36,000) = 9,000 euros

Deduction generated by the producer in 2022: (100,000 x 0.3) = 30,000 euros

Regarding the completion of form 200, company "A" must take into account that it cannot apply the deduction for taxpayers who participate in the financing of film productions (article 39.7 LIS) until the production is completed in the year 2024. Therefore, the company will only be able to apply the R&D deduction (art. 35 LIS) in the amount of 3,000 euros in the 2022 financial year.

Therefore, the company will complete the deduction table to encourage certain activities (page 17 of form 200) for the 2023 financial year as follows:

Deduction modality Pending/generated deduction Applied in the liquidation Pending application
2022: Investigation and development 3,000 3,000 0

Liquidation of Corporate Tax 2023

First of all, company “A” must take into account the deduction amounts that entitle it to raising the deduction limits.

Checking the limit of article 39.1 of the LIS:

R&D deduction (art. 35 LIS): 10,000 euros

10% (50,000) = 5,000 euros

10,000 euros > 5,000 euros, so you must apply the joint limit of 50%:

Limit art. 39.1 LIS: 50% (50,000) = 25,000 euros

Checking the limit of article 39.7 of the LIS:

Deduction generated by the producer in 2023: (70,000 x 0.3) = 21,000 euros

Deduction generated by the producer in 2022 and 2023: (170,000 x 0.3) = 51,000 euros

Application of the deduction:

Financier may apply: [(55,000 + 15,000) x 1.2] = 84,000 euros

However, to the extent that the previous result (84,000 euros) is higher than the deduction generated by the producer in 2022 and 2023 (51,000 euros), the financier may apply the entire deduction generated by the producer (51,000 euros), without the producer being able to apply any amount of the deduction as there is no excess (51,000 – 51,000 = 0).

Deduction for Spanish film productions financed by the financing company (article 39.7 LIS): 51,000 euros

25% (50,000) = 12,500 euros

51,000 euros > 12,500 euros, so you must apply the joint limit of 50%:

Limit art. 39.7 LIS: 50% (50,000) = 25,000 euros

Thus, for the purposes of applying the R&D deduction (article 35 LIS) and the deduction for the taxpayer who participates in the financing of film productions (article 39.7 LIS), the company must apply the joint limit of 50 percent to both deductions, therefore:

Joint limit Fiscal Year 2023: 50% (50,000) = 25,000 euros

Company "A" can apply the deduction of article 35 of the LIS in the amount of 10,000 euros in the year 2023 and as for the deduction of article 39.7 of the LIS, in this year 2023 the amount of 51,000 euros can be applied, since in this year 2023 the film has been completed.

The joint limit is 25,000 euros and the total amount of deductions to be applied by the company in this fiscal year is 61,000 euros, so the company must decide which deduction or deductions to apply. We understand that the most advantageous option for society would be to first apply the deduction of article 39.7 of the LIS, since the R&D deduction has a longer period of application, 18 years, compared to the 15 years provided for the deduction of article 39.7 of the LIS.

Therefore, the company will complete the deduction table to encourage certain activities (page 17 of form 200) for the 2023 financial year as follows:

Deduction modality Pending/generated deduction Applied in the liquidation Pending application
Sum deductions Chap. IV Tit. VI Law 43/95, RDLeg. 4/2004 and LIS  0 0 0
2023: Investigation and development 10,000 0 10,000
2023: Funder: Spanish film productions 51,000 25,000 26,000