China Launches Tax Evasion Probe

China has made headlines recently for the launch of a tax evasion probe that specifically targets the film and TV industry. According to early reports, tax authorities have expressed concern over the common “yin-yang” contracts signed by actors in the country. These are actually two sets of contracts, one with the amount the actor is actually paid and one with a lower salary listed to deliver a low tax fee.

These “yin-yang” contracts are actually incredibly common for more than TV and film industries. They are common in a range of acquisitions, including real estate. Despite this, until the announcement of China’s tax evasion probe in early June, the last time any high-profile artist underwent a tax investigation was back in 2002. At the time, actress Liu Xiaoqing was found guilty and spent a year in prison due to tax invasion.

The Market

The current valuation of the Chinese cinema market is $8.6 billion, indicating a large potential for bank secrecy and those involved participating in tax evasion. As the industry is filled with high-net-worth individuals, it is likely only a matter of time until Chinese authorities discover that some of the major names have not demonstrated transparency on their taxes.

The announcement immediately impacted the index tracking for major media firms, dropping this index 1.3 percent the day after the announcement, down to a level that is almost a four-year low. The decline in stock value continued over the week. By the Friday following the announcement, Zhejiang Talent Television and Film saw its shares drop 2.85 percent, with a drop of about 13 percent throughout the week. Similarly, the Shenzhen composite dropped 1.22 percent and the Shanghai composite was down 1.37 percent.

The Announcement from SAT

SAT, the State Administration of Taxation, announced its planned tax evasion probe on June 3 via its website. According to the statement, it is specifically focusing on the television and film industry. SAT asked local bureaus within Jiangsu, a southern province, and others to begin their investigations. They will deal with any individuals who are found to have broken the tax laws in the manner expressed in the country’s legal system.

Much of the controversy regarding the tax probe has been linked to Fan Bingbing, a top-earning actress who Forbes estimates earned $46.8 million last year. These allegations toward Bingbing stem from two contracts that allegedly belong to her and show two different salaries for work on the upcoming “Unbreakable Spirit,” indicating that she signed “yin-yang” contracts. Bingbing’s personal studio has since issued statements that these allegations are not true, and the Chinese authorities have not yet released any information regarding accusations or proof against her or any other Chinese film and TV actors.

Source:

China tax probe:https://www.reuters.com/article/us-china-tax-actors/china-launches-tax-evasion-probe-into-film-tv-industry-idUSKCN1J003K
https://www.hollywoodreporter.com/news/fan-bingbing-tax-evasion-probe-sparks-film-industry-crisis-china-1116723