China settles with Hollywood over withheld payments

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Image Credit: Jason Lee/Reuters/Landov

The Motion Picture Association of America is celebrating a resolution with the China Film Group that will allow Hollywood studios to collect millions of box-office dollars that was being held back by the Chinese since last year. “The MPAA understands that the China Film Group stopped payments owed to MPAA studios in China pending resolution of the application of a new value-added tax (VAT) due to be implemented nationwide as of August 1,” said MPAA chairman and CEO Christopher Dodd, in a statement. “We are pleased to hear that the Chinese government has addressed the matter and all money due will be paid in full. It is our understanding that the payment process has recommenced.”

In early 2012, China and the U.S. negotiated an agreement that expanded the number of foreign films allowed to play in China, now the world’s second-biggest movie market, and gave Hollywood studios 25 percent of the Chinese box-office from their films. However, in anticipation of a 2 percent value-added tax that the Chinese government levied on movie tickets, the China Film Group insisted that the studios pay for that tax out of their profits. As a result, nearly $200 million was withheld from all the major studios, related to films like Life of Pi, Iron Man 3, and Man of Steel.

China recently surpassed Japan to become the second-biggest film market in the world, with revenues of $2.7 billion in 2012. While audiences in North America spent $10.8 billion, China’s 36 percent year-over-year growth puts them on pace to become the globe’s top market by 2020, according to many market analysts. Hollywood studios have made slow by steady progress in China, dealing with state censorship and a foreign quota system that limits the number of non-Chinese films. Since Chinese-American co-productions qualify as Chinese movies, several blockbusters, such as the upcoming Transformers movie, have taken advantage of the loophole by utilizing Chinese actors and settings. Though the MPAA claimed it was satisfied with the recent resolution, it remains unclear which side will pay the 2 percent tax that was at the root of the disagreement.


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