Chinese State Administration of Taxation (SAT) will start investigating China’s wealthiest celebrity, actress Fan Bingbing, for tax evasion.
The Straits Times reports that the actress of X-Men fame allegedly signed “two contracts in a bid to avoid paying taxes,” a practice in which “the contract bearing a smaller sum [is] used for tax reporting.”
More specifically, says the People’s Daily, the Chinese star, who was allegedly exposed via an online tip, will be investigated for “signing different contracts to gain as much as 60 million yuan…for a four-day movie shooting.”
All of this started when Chinese TV talk show host Cui Yongyuan got hold of Fan Bingbing’s contracts and revealed the disparity via social media.
According to The Epoch Times, Yongyuan “posted pictures of Fan’s acting contracts—one for 10 million yuan (about $1.56 million) and another for 50 million yuan (about $7.8 million), both for the same acting job—on his personal Weibo account, the Chinese equivalent of Twitter.”
These documents, writes The Epoch Times’ Frank Fang, “alleged that Fan hid her true income via “yin-yang contracts,” in which a person secretly pockets the money from a higher-value contract but reports the lower-figure contract to the authorities for the purpose of tax evasion.”
As explained by Shi Zhengwen of the Center for Fiscal and Tax Law Research at Beijing’s China University of Political Science and Law, “Yin-yang contracts are an illegal way of avoiding taxes, and is a common practice among people with high income.”
Furthermore, Shi said, “if Fan failed to pay 10 percent of her taxes, she could face up to three years in prison, and a three to 10-year sentence if she failed to pay 30 percent or more.”
Bingbing’s studio declared that the actress has never partaken in the signing of “ying-yang” contracts and accused the TV talk show host of defamation and rumormongering.
“The studio and Fan Bingbing will fully cooperate with the relevant authorities. We hope the investigation result can be released soon to address the doubts of the public,” said a studio spokesperson.
In a press release, the SAT announced, “If violations of tax laws and rules are found, they will be dealt with in accordance with the law.”
Tax Havens Complicate Fight Against Tax Evasion & Ying-Yang Contracts
To make things matter worst, the emergence on tax havens in China and their use by film companies has complicated the SAT’s fight against tax evasion and these commonly used contracts.
According to The Economist, “their destination of choice has been Khorgos, a desert outpost in China’s far west, next to Kazakhstan,” where now close to fifteen thousand businesses “enjoy a five-year holiday from corporate taxes, followed by another five years in which they pay only about half.”
While local revenue in Khorgos has dramatically increased, most of the businesses established there “do not actually do anything there” and “are in asset-light industries, such as media and also financial services.”
China Pursues Tax Evasion Investigations into Film & TV Industry
Following the Fan Bingbing debacle, Chinese tax authorities have also started looking into several other stars in the film and entertainment industry and their tax records.
As a result, many companies that have shares listed on the Shanghai and Shenzhen stock exchanges saw significant losses.
For instance, Huayi Brothers Media, one of the country’s largest and most important media businesses, lost close to 356 million dollars in equity value, while Alibaba’s Beijing Enlight Media saw 284 million dollars disappear.
Speaking to The Global Times, Mr Zhang Peng of Nanjing University’s National Research Centre of Cultural Industries, said, “The online controversy focuses on actors’ excessive salaries, but it is only the tip of the iceberg for the industry.”
“While China has issued several statements seeking to regulate the entertainment industry over the years, it has failed to curb the phenomenon,” he added.
Tax experts believe the actress will not face jail time, unless she opts not to pay her fair share in taxes and any associated fees or fines.
According to Forbes, Bingbing is one of the world’s highest paid actresses, racking close to 17 million dollars in earnings two years ago.
Furthermore, China’s film market is valued at approximately 8.6 billion dollars.