China's Film Industry Paid $1.7B in Back Taxes Following Fan Bingbing Scandal

Fan Bingbing
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I Am Not Madame Bovary, Cell Phone

The phenomenal sum, which stars and studios paid under threat of serious punishment from Beijing, represents a full fifth of China's total box office revenue in 2018.

China’s film industry paid out more than $1.7 billion in back taxes in the aftermath of last year's explosive tax-evasion scandal involving superstar actress Fan Bingbing, state media reported Tuesday.

The phenomenal sum represents a full fifth of China's total box office revenue in 2018. The back payments were made by companies, as well as individual film stars and professionals.

Battered by tax bills and shrunken stock market valuations, Chinese studio executives have taken to calling 2019 the new "cold winter" for the Chinese film business. Wildly cash-flush as recently as three years ago, many entertainment companies across the industry are now seeking ways to cut costs and invest more conservatively in new content.

The enormous, industry-wide tax payout was prompted by panic rather than a sudden fervor for patriotic altruism.

Following Fan Bingbing's sensational fall from grace last October — she was ordered to pay over $100 million in back taxes after spending weeks in detention — Beijing authorities instructed entertainment industry players to "re-evaluate" their tax histories in the spirit of "self-examination and self-correction." Companies were given until the end of 2018 to correct their tax standing, then those found to be in arrears would be "seriously dealt with according to law," according to state directives.  

China's State Administration of Taxation and the National Radio, Television and Film Administration said Tuesday that the "supervision and correction work" had yielded positive results, according to state-run news agency Xinhua.

The clean-up was sparked last June when a former TV star leaked documents online allegedly demonstrating a tax-dodge scheme involving an unnamed major star — instantly identified by fans as Fan Bingbing. The materials were said to lay bare the widespread, but thoroughly illegal, practice of "yin-yang contracting," whereby production companies provide actors with two sets of pay contracts: a small one to submit to tax authorities, and a second revealing the star's vastly larger true pay.

Not long after, Fan mysteriously went missing and various government authorities said they would be launching tax investigations. The market valuations of top Chinese studios then took a dive, as investors, smelling political trouble, fled from the sector. 

Fan didn't reemerge until October — in the interim, China's rumor mill went into overdrive, with claims that she had escaped to the U.S. or been imprisoned — when state media issued a report stating that the actress faced approximately $130 million in back taxes and fines. Shortly after, Fan released a groveling apology, saying: "I failed my country, which nurtured me; I failed the society, which trusted me; I failed the fans who loved me."