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Tax Evasion Scandals Stall Film Production in China

Things are changing fast in China’s entertainment industry. The country’s film business is expected to enter a period of slowdown as the government continues to crack down on tax evasion after the eruption of the scandals surrounding Chinese actress Fan Bingbing (pictured above) and the war epic “Unbreakable Spirit.”

Many productions in the making have been put on hold amid the new uncertainties. Big-budget blockbusters and highly paid A-listers are likely to be affected the most.

Emperor Motion Picture confirmed to Variety that the production of “Crossfire” has been postponed until further notice. The action-thriller, to be directed and produced by Benny Chan and starring Donnie Yen, who also serves as producer, was announced during FilMart in Hong Kong in March. The film is expected to be a big-budget co-production as it was going to be shot on location in South America, but EMP still has not confirmed who the mainland partners are for the project.

Several Hong Kong directors who have been developing projects on the mainland have said that their plans have been put on hold recently and they will focus on smaller Hong Kong local projects that do not require mainland investments.

“Many mainland investors now have second thoughts about projects they had previously committed to. Actors cannot confirm their appearances either. Everyone wants to lay low during this period until the tax issue is cleared. The budget needs to be reworked too now that tax is a consideration,” says one director whose mainland project was suspended.

It emerged at the beginning of October that Fan, China’s highest-paid actress and a star of films including “X-Men: Days of Future Past” and “Iron Man 3,” was made by the authorities to pay a staggering $129 million unpaid taxes and fines following an investigation into her and her companies.

In the summer, the actress was accused of tax evasion following the exposure of her “yin-yang contracts” — split contracts of different values with only the smaller one submitted to the tax authorities — signed for her role in war epic “Unbreakable Spirit,” also starring Bruce Willis.

She disappeared for 123 days until the tax authorities announced their investigation results and penalties. She re-emerged on Weibo (China’s version of Twitter) with an apology letter admitting her wrongdoing and expressing her gratitude towards the Communist Party.

The State Administration of Taxation continues the crackdown following Fan’s scandal, urging entertainment companies and top-earning celebrities to re-examine their taxes dating back to 2016 and pay up the unpaid amount by the end of this year if they wish not to be penalized. The authorities said they will also review its policies and establish a new system by the end of July 2019.

The abrupt cancellation of the China release plans for “Unbreakable Spirit” also created another layer of uncertainty. Previously known as “The Bombing,” the film features a stellar cast that also includes Nicholas Tse and Liu Ye. It was originally slated for August release, but was moved to Oct. 26.

And just one week before that, it was announced that the domestic release plans were scrapped a day after Cui Yongyuan, the TV host who exposed Fan’s “yin-yang contracts,” alleged the film was a money laundering scheme involving $432 million coming from the Shanghai pension fund money — nearly five times more than the film’s estimated budget of $90 million.

In fact, several ongoing trends that began a few months ago have been pointing to the slowdown of the China’s entertainment industry. One is the exodus of entertainment companies registered in Khorgas in the province of Xinjiang. The small city located in western China became a special economic zone in 2010, offering attractive tax benefits to companies registered there.

The Chinese media reported that more than 1,600 entertainment companies registered during the peak time. But since June, at least 102 such companies have cancelled their registration, including companies with shares held by Chinese director Feng Xiaogang, actress-director Xu Jinglei and action star Vincent Zhao. The authorities are also tightening tax benefits.

Changes in the scale of productions at Hengdian World Studios, one of China’s largest and most popular studios, located in Zhejiang Province, have occurred in recent months.

“Only small-budget productions are shot there at the moment,” says Tenky Tin Kai-man, the head of the Federation of Hong Kong Filmmakers. “Smaller productions pay less tax.”

Tin said it is true that many big productions have been put on hold as companies and actors are busy catching up with their tax records and paying the unpaid tax before the deadline. “Everyone is adopting a wait-and-see attitude for the time being. I think it has to wait until next year till the air has cleared,” he says.

But while big-budget productions are grinding to a halt, small productions with a budget of less than $1.4 million are likely to survive, Tin says. He also expected to see top celebrities take a break from the big screen during this time.

Tin, however, believes that the tax crackdown could help make adjustments to China’s entertainment industry bubble, as money coming from non-traditional film funding sources has been inflating the pay of actors and production costs. “A lot of financiers have been playing financial tricks to make quick money in this bubble, riding on speculation and the industry’s expansion,” says Tin. “It’s good to have this adjustment now. The industry can go back to reality and people can be more cautious. Prices will return to the reasonable range.”

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