Honeymoon Over? China Seeking to Tax Hollywood Profits Beyond WTO Rules

Hollywood swallowed hard–very, very hard–when deciding to enter into the movie business with China.

The industry looked past the country’s human rights abuses and its willingness to censor the arts in order to turn a bigger profit. If they made a Hollywood movie out of the partnership, the show business types would be the greedy bad guys who get their comeuppance in the end.

Now, industry executives are learning it’s not so easy to play nice with the Communist country. Seems China isn’t giving movie studios their recent profits, claiming it wishes to impose a new, 2 percent tax on them above and beyond existing tax structures. 

The China Film Group is withholding payments following disagreements over a new 2% VAT-style tax that Beijing expects US studios to pay. The American studios say the tax violates World Trade Organisation rules but so far have failed to make an official complaint or withdraw their films from cinemas. All six major US studios are reportedly involved in the impasse.

Chris Dodd, chairman of the US film group the Motion Picture Association of America, is currently working on a solution to the disagreement … US vice president Joe Biden signed a deal last year that studios believe is violated by the demand for payments under the “luxury” tax.

Hollywood has been playing nice with Chinese movie officials for months now, creating special content engineered to delight Chinese audiences, snipping out story lines the Chinese might find offensive and casting Chinese actors in lucrative franchises like the fourth installment of the Transformers series.