China cracks down on celebrity tax evasion China cracks down on celebrity tax evasion

China cracks down on celebrity tax evasion
23 Aug 2018

The Chinese authorities have begun a coordinated crackdown on tax evasion and offshore currency transfers by some of the country’s highest-paid celebrities.

The probes were triggered by popular TV host Cui Yongyuan, who blew the whistle in June on a prevalent practice in China’s entertainment circles to enable highly-paid celebrities to evade tax. The fraud is perpetrated by creating dual accords known as 'yin-yang contracts' that split remuneration agreements into a copy for tax officials and a private copy for the actor. 

The top rate of tax in the country is 45%. But to avoid paying it, many high-income earners channel their remuneration into their own studios or production houses, which qualify as small businesses and are liable for a 6% tax rate instead.

There are also tax breaks, rebates or other forms of incentives provided by local authorities in some of China’s backwater cities, which are setting themselves up as low-tax havens for the entertainment industry.

Investigators are likewise looking into payments made to some of the country’s top models as well as renumeration for product endorsements and advertising fees provided to TV personalities and sports stars, according to sources of the South China Morning Post.

After weeks of investigations, at least nine of China’s biggest television and film studios and six local ones have capitulated. The large players have agreed to cap the payments provided to their acting talent at one million yuan (US$145,295) per episode and a maximum of 50 million yuan (US$,7264,750) for an entire season, regardless of length. 

The total remuneration offered to actors in films, television drama, online video and audio programmes must now be capped at 40% of production costs, with leading players being paid no more than 70% of the total. The new scheme also applies to Hong Kong-based actors, many of whom appear regularly in mainland Chinese movies and TV dramas.

A second part of the investigation by the authorities involves the illegal remittance of cash in contravention of the country’s strict capital controls. The Chinese currency has weakened by 5% against the US dollar this year, the fifth-biggest loser among a dozen Asian currencies. The spectre of a falling currency has rekindled a stampede by Chinese citizens to remit their wealth overseas to safer havens.

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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The Chinese authorities have begun a coordinated crackdown on tax evasion and offshore currency transfers by some of the country’s highest-paid celebrities.

The probes were triggered by popular TV host Cui Yongyuan, who blew the whistle in June on a prevalent practice in China’s entertainment circles to enable highly-paid celebrities to evade tax. The fraud is perpetrated by creating dual accords known as 'yin-yang contracts' that split remuneration agreements into a copy for tax officials and a private copy for the actor. 

The top rate of tax in the country is 45%. But to avoid paying it, many high-income earners channel their remuneration into their own studios or production houses, which qualify as small businesses and are liable for a 6% tax rate instead.

There are also tax breaks, rebates or other forms of incentives provided by local authorities in some of China’s backwater cities, which are setting themselves up as low-tax havens for the entertainment industry.

Investigators are likewise looking into payments made to some of the country’s top models as well as renumeration for product endorsements and advertising fees provided to TV personalities and sports stars, according to sources of the South China Morning Post.

After weeks of investigations, at least nine of China’s biggest television and film studios and six local ones have capitulated. The large players have agreed to cap the payments provided to their acting talent at one million yuan (US$145,295) per episode and a maximum of 50 million yuan (US$,7264,750) for an entire season, regardless of length. 

The total remuneration offered to actors in films, television drama, online video and audio programmes must now be capped at 40% of production costs, with leading players being paid no more than 70% of the total. The new scheme also applies to Hong Kong-based actors, many of whom appear regularly in mainland Chinese movies and TV dramas.

A second part of the investigation by the authorities involves the illegal remittance of cash in contravention of the country’s strict capital controls. The Chinese currency has weakened by 5% against the US dollar this year, the fifth-biggest loser among a dozen Asian currencies. The spectre of a falling currency has rekindled a stampede by Chinese citizens to remit their wealth overseas to safer havens.

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

OTHER ARTICLES THAT MAY INTEREST YOU

India tightens up on tax evasion

Poland's tax evasion strategy is working, claims study

France recovers billions in tax fraud and evasion crackdown

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