Imagine a tax not just on imported steel—but on your code, your legal memo, or your radiology scan. That’s the potential consequence if creative works like movies are treated as taxable items in the same way as physical goods.
There has been talk about a proposal suggesting a tax on foreign-produced movies. While the details remain unclear, the idea has already sparked debate around its feasibility, implementation, and broader consequences. Previously, we considered how such a tax might unintentionally accelerate AI adoption in the film industry.
Now, let’s examine the tax question more closely.
Historically, taxes on imports—i.e., tariffs—have applied to tangible goods, as defined in longstanding trade laws. Services are generally excluded. In the case of a movie—which is created through a combination of direction, editing, and production services—the legal basis for taxation becomes murky unless the work is imported in physical form, such as a DVD. Today, most content is delivered digitally, complicating enforcement under current rules.
Legal precedent often treats digital creative works more like software or services than physical commodities. So if a film is produced abroad and streamed in the U.S., it more closely resembles intellectual property (IP) than a traditional good. Under current law, taxing such a digital import would likely face legal and logistical challenges.
To implement this proposal, legislative changes would likely be required—either by Congress establishing a new tax category for foreign-produced IP, or through executive action attempting to redefine taxable imports to include services. The former is complex; the latter would be disruptive.
Currently, U.S. customs duties apply to tangible goods, not intangible assets like digital movies or software. Instead, income derived from foreign IP used in the U.S.—such as licensing fees or sales revenue—is generally governed by U.S. income tax law, often shaped by international tax treaties.
For example, if a British production company licenses a documentary to a U.S. streaming platform, the licensing income received by the British company is typically taxed under U.S. withholding tax rules—usually at a reduced rate under the U.S.-U.K. tax treaty. The U.S. company reports the payment, applies the appropriate tax rate, and the foreign rightsholder may still owe tax in their home country depending on how their tax system treats foreign-sourced income.
A move to tax foreign-created IP at the point of digital entry—regardless of physical form—would represent a significant departure from this established framework, shifting taxation away from income and toward digital “import” status.
Why It Matters Beyond Hollywood
If this logic gains traction, it’s not a stretch to imagine similar efforts targeting other service-based industries that rely on globally sourced work: software development, legal research, medical imaging, financial accounting, and more.
If your work involves providing services or creating IP—especially across borders—this should be on your radar. Hollywood may be the testing ground, but your industry could be next.
