Entertainment & Arts

Hollywood studios reach deal with China over tax row

Gwyneth Paltrow and friend in Iron Man 3
Image caption Disney released a special version of Iron Man 3 for the Chinese market

Hollywood studios say they have reached a deal with Chinese authorities over missing payments for some of the year's biggest box office films.

Payments had stopped due to a dispute over a new 2% tax. Some reports say studios are owed $200m (£129m) for films like Man Of Steel and Skyfall.

But The Motion Picture Association of America says the Chinese government has now intervened in the dispute and "all money will be paid in full".

Payments have already resumed, it says.

The money was being withheld by the China Film Group, a state-owned distributor which oversees the release of foreign films in China.

It had wanted to deduct a new 2% value added tax from what the studios earned in ticket sales.

The American studios argued that the tax violated World Trade Organisation rules, which stated they should receive 25% of Chinese box office revenue, with no deductions.

The Hollywood Reporter said film companies had not been paid since October or November and estimated they were owed close to $200m.

According to the Motion Picture Association of America, China's box office revenues increased by 36% to $2.7bn (£1.8bn) in 2012, making it the world's second-biggest movie market and underscoring its importance as a key market for Hollywood's moviemakers.

'In breach'

The boost came after a World Trade Organisation (WTO) deal reached by US Vice-President Joe Biden and China's then Vice-President Xi Jinping, in which China agreed to increase the number of foreign films allowed to be screened in the country to 34.

In return, foreign studios would receive a 25% share of box-office takings, up from between 13% and 17%.

"Chinese authorities agreed that additional payments, including any taxes, would not come out of the 25% split. But late last fall, the China Film Group informed studios that it intended to pass along the tax after all," said the magazine.

As part of Hollywood's attempt to woo Chinese audiences, Disney released a special version of Iron Man 3, with an extra scene featuring a new character and storyline.

The Marvel Comics-based movie in which Robert Downey Jr. continues his success as superhero Tony Stark, earned a record-breaking $65m in China its first weekend.

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