Hollywood, China still at odds over tax
Updated: 2013-08-01 13:10
By Liu Wei (China Daily)
A Chinese father and son look at posters of US and foreign films outside a cinema in Beijing on Wednesday. China has stopped paying Hollywood studios for their films in a dispute over a Chinese tax on movie profi ts. Mark Ralston / AFP
Discussions between Hollywood studios and Chinese distributors are still going on, following reports that for some time now American movie companies have not received their fair share of box office income from screenings of their films in Chinese cinemas.
A senior Chinese movie industry insider, who asked to remain anonymous, told China Daily that the two sides are now awaiting results of negotiations at a "higher level".
The source also said that one of the reasons China Film Group, the dominant distributor of foreign movies in China, will not pay a new value-added tax is because it fears doing so would hurt its efforts to get listed on the Chinese stock exchange. The increase in the Hollywood studios' box office share since 2012 had already lowered its profits, and the new tax has the group even more concerned.
Multiple sources have confirmed that Hollywood studios have not received their share of box office receipts from films they released in China this year, due to a dispute over the new tax on movie profits.
China imports 34 foreign films a year for theatrical release, most from Hollywood.
Hollywood studios share profits from China releases of their films with their Chinese distributor - China Film Group - and with the theaters that show the films.
Hollywood studios used to take a share of between 13 and 17 percent, but an agreement in February 2012 between then Vice-President Xi Jinping and US Vice-President Joe Biden increased the cut to 25 percent.
Subsequent tax reform in China has tacked a 2 percent value-added tax onto box office receipts. China Film Group wanted Hollywood studios to pay the tax, but the studios refused.
According to the Hollywood Reporter, Chinese authorities had agreed that additional payments, including any taxes, would not come out of the studios' 25 percent split. But late last fall, China Film Group told the studios that it intended to pass along the tax after all.
None of the six major Hollywood studios nor China Film Group would comment.
The tax could cost Hollywood studios millions of dollars a year.
The Wall Street Journal used Ang Lee's Life of Pi as an example of how the new tax would affect a studio's profits.
The movie grossed about $91 million in China last year. Fox's share should translate to nearly $23 million. the new tax, however, would reduce Fox's take by about $2 million.
Sources confirmed to China Daily that the six major Hollywood studios that released films in China in 2013 have not been paid their share of the revenue for their movies.
The Beijing office of the Motion Picture Association of America said it would comment within a few days.
Chris Dodd, CEO of the MPAA, told China Daily in an interview in June that the association was working on the issue by talking to China's top industry regulators.
"Discussions are ongoing, and I am optimistic something will be worked out," Dodd said. "I am satisfied we are headed in the right direction."
China has become the second-largest film market behind the US. Annual box office receipts have seen a continual rise of 30 percent since 2003, reaching 17 billion yuan ($2.77 billion) last year.
Critic and industry observer Bi Chenggong sees little possibility that the two sides will quit negotiating.
"The Hollywood studios need to establish a long-term foothold in such an important market. It would cost too much for them to break with China Film Group and other authorities when the film industry in China is not yet entirely market-oriented."
(China Daily USA 08/01/2013 page1)