A film production contract regulates the relationship \nbetween the filmmakers (such as directors, screenwriters, \nand cinematographers) and the film producer. This \ncontract obligates authors to cooperate in making a film \nand to assign their property rights to that work to the \nproducer, allowing the producer to use, distribute, and \ngenerate income from the film. The film production \ncontract plays a key role in protecting the rights of the \nfilmmakers and ensuring the legal use of their works by \nproducers. In practice, however, filmmakers, wanting \nto get tax benefits, often conclude these contracts as \nentrepreneurs. This article explores the legal and tax \naspects of such a practice and gives an insight into \npossible alternatives<\/p>\n\n
Legal Issues Faced by Entrepreneurs in the Film Industry<\/strong><\/p>\n\n Even though the tax administration has not questioned
\nover the years the practice of concluding copyright
\ncontracts as entrepreneurs, we deem it problematic.
\nNamely, based on our interpretation, entrepreneurs cannot be filmmakers, as a cultural (filmmaking) activity,
\naccording to the Law on Culture, can only be performed
\nby (independent) artists, cultural institutions, cultural
\nassociations, collaborators, or cultural experts. In that
\ncontext, an artist is defined as a natural person who
\ncreates copyright works, while an independent artist is
\none who performs artistic activity as their profession.
\nTherefore, we believe that a natural person can create
\nfilm works exclusively as an (independent) artist, while
\nthe entrepreneur status is reserved for performing
\neconomic activities. This additionally affects the transfer
\nof property rights, because if the entrepreneur cannot be
\na film author, they cannot transfer the property rights to
\nthe producer. In that case, there is a missing link in the
\nchain of transfer of rights: in order for the entrepreneur
\nto transfer the rights to the producer, they would first
\nhave to obtain those rights from the author, which never
\nhappens in practice<\/p>\n\n Authors as Individuals or Sole Proprietors<\/strong><\/p>\n\n Of course, there are cases in which authors do not
\nenter into contracts with producers as entrepreneurs,
\nbut as natural persons \u2013 directors, screenwriters or
\nvideographers. However, almost as a rule in such
\ncontracts, the authors agree on a single amount of
\ncompensation that the producer owes them, and it is
\non that amount that they calculate the income tax and
\nrelated contributions. Therefore, it is not surprising
\nthat many authors, all potential issues aside, choose to
\nenter into a film productiom contract as entrepreneurs.
\nInstead of paying income tax and contributions, which
\noften take more than half of their royalties, they opt for
\nflat rate taxation, thereby reducing their tax burden to a
\nmuch smaller amount.<\/p>\n\n Tax Optimization Opportunities for Film Authors<\/strong><\/p>\n\n In this article, we argue that filmmakers can avoid high
\ntaxes on copyright contracts, even if they do not enter
\ninto contracts through their entrepreneurial actions.Namely, Article 88 of the Law on Copyright and Related
\nRights (Zakon o autorskim i srodnim pravima, hereinafter:
\nZASP) stipulates that within the film production
\ncontract the authors will oblige the producer of the film
\nto 1) collaborate creatively on the production of the film,
\nand 2) assign to him their property rights to that work.
\nAssignment of property copyrights based on the contract
\nis regulated by Section 6.2. of the ZASP, entitled \u201cTransfer
\non the basis of a contract,\u201d specifically in Article 61 of
\nthe ZASP, which prescribes that the author, that is, his
\nlegal successor, can assign some or all of the property
\nrights to his work to another person. Article 92 of the
\nZASP expressly stipulates that the compensation for
\nthe film production does not include the compensation
\nfor other forms of exploitation of the film. Due to this,
\nthe film producers should pay two different fees to the authors based on the film production contract. One is
\na compensation for their artistic involvement, and the
\nother for the acquisition of property copyrights.<\/p>\n\n Two Types of Fees Under the Law on Copyright and Related Rights<\/strong><\/p>\n\n The conclusion based on the quoted provisions of the
\nZASP is that the author is entitled to two compensations
\nunder the film production contract. The first one is for
\n\u201ccreative collaboration on the film production\u201d and the
\nsecond for the transfer of property copyrights. Creative
\ncooperation is an engagement by which the author obliges
\nto undertake actions such as: directing, shooting, creating
\nscenography, costume design, and the like. Through that
\n\u201cengagement\u201d the author\u2019s intellectual property I created,
\nsuch as: direction, shooting, scenography, costumes, and
\nthe like. Besides \u201ccreative cooperation,\u201d it is necessary
\nfor the film producer to obtain the property rights of the
\nauthor of the film and individual contributions to the
\nfilm. Copyrights are acquired through transfer and\/or
\nassignment agreements, which is a form of legal transfer
\nof intellectual property.<\/p>\n\n Tax Treatment of Fees for Creative Collaboration and Transfer of Rights<\/strong><\/p>\n\n Interpreting the aforementioned provisions of the ZASP,
\none comes to the conclusion that the compensation
\nfor \u201ccreative collaboration\u201d during the shooting of a
\nfilm, representing an income obtained from copyrights,
\nis subject to personal income tax (which is paid by
\ndeduction) and the corresponding contributions for
\nmandatory social insurance. On the other hand, the
\nfee for assigning copyrights is subject to the tax on the
\ntransfer of absolute rights, as it is an exclusive transfer of
\nintellectual property rights that is unlimited in terms of
\ntime, space, and subject matter for a fee. In addition, any
\nincome that is realized as a positive difference between
\nthe sale and the purchase price of the property right that
\nwas traded is taxed with capital gains tax.<\/p>\n\n The Amount of Compensation for Rights Transfer in the Film Industry<\/strong><\/p>\n\n Given that authors in most cases assign all their property
\nrights to the film without any restrictions, the fee for
\nthe transfer of rights paid by the producer to the author
\nshould be significantly higher than the fee paid for the
\nprocess of creating the film itself. As a result, most of
\nthe amount that the author receives from the producer
\non the basis of the film work contract should be taxed
\nat the rate of 2.5%, with a possible addition of 15% on
\nthe income generated by the transfer of rights. This tax
\ntreatment represents a drastic reduction compared to
\nthe combination of income tax and contributions, the
\ntotal taxation effect of which can amount to more than
\n50% of royalties, depending on specific circumstances
\nand possible reliefs.<\/p>\n\n Properly Structured Contracts as the Key to Tax Optimization<\/strong><\/p>\n\n To summarize, the film production contract is the basic
\ninstrument for regulating the relationship between
\nauthors and producers, ensuring the protection of
\nauthors\u2019 rights and the legal use of their works. Although
\nthe practice of concluding contracts as entrepreneurs
\nmay be as a short-term solution for avoiding high
\ntax obligations, in the long run, it creates more legal
\nproblems than it solves. According to current laws,
\nauthors cannot be entrepreneurs, and without proper
\ntransfer of property rights the key link in the chain of
\nrights is lost, which can make contracts ineffective.<\/p>\n\n As we have already stated, given that authors most often
\nassign property rights without restrictions, the fee for
\nthe transfer of rights paid by the producer significantly
\nexceeds the fee for creating the film. This implies that
\nthe greater part of the total remuneration is taxed at a
\nmore favorable rate of 2.5%, with an additional taxation
\nof 15% on any profit realized from the sale of rights. That
\nkind of fee structure allows filmmakers significant tax
\nsavings and can be an effective strategy for optimizing
\nincome. Therefore, filmmakers have the possibility
\nto avoid high taxes not only through entrepreneurial
\nactions but also by properly drafting their contracts.
\nWith proper legal advice and an understanding of the
\nlegislative framework, filmmakers can secure their rights
\nwhile preserving their creativity and artistic integrity.<\/p>\n","protected":false},"excerpt":{"rendered":" A film production contract regulates the relationship
between the filmmakers (such as directors, screenwriters,
and cinematographers) and the film producer. This
contract obligates authors to cooperate in making a film
and to assign their property rights to that work to the
producer, allowing the producer to use, distribute, and
generate income from the film. The […]<\/p>\n","protected":false},"author":3,"featured_media":1529,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"slim_seo":{"title":"Tax Treatment of a Film Production Contract - Ugovor o filmskom delu - pravni i poreski tretman - T-S Legal","description":"Filmski autori mogu zna\u010dajno smanjiti poreze pravilnim ugovorom o filmskom delu. Saznajte koje naknade se oporezuju, kako funkcioni\u0161e prenos prava i koje opcije nude najve\u0107e poreske u\u0161tede."},"footnotes":""},"categories":[18],"tags":[],"class_list":["post-1527","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-views"],"_links":{"self":[{"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/posts\/1527","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/comments?post=1527"}],"version-history":[{"count":0,"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/posts\/1527\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/media\/1529"}],"wp:attachment":[{"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/media?parent=1527"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/categories?post=1527"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/t-s.legal\/en\/wp-json\/wp\/v2\/tags?post=1527"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}