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China holds movie profits hostage as Hollywood studios refuse to pay new tax

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Despite big box office welcomes for movies like Skyfall, Man of Steel, and Star Trek Into Darkness in China, a dispute over tax has meant Hollywood studios are yet to see a dollar in revenue from them. According to The Hollywood Reporter, the China Film Group began restricting payments to studios last year as it sought to impose a new 2 percent value-added tax on movie profits. US studios refused to pay the duty, saying it should not be deducted from its pre-agreed revenue split, and sources say the matter has now escalated to a government level.

For Hollywood studios, the issue is complicated. While a 2 percent tax cuts into their worldwide profits, China is already the world's largest film market outside the US and is set to become the biggest within the next five years. Normally, the studios might choose to restrict the release of their movies in the country, but China has only recently started to open access to international movies and it offers a massive population of moviegoers that they want to attract. Even with millions of dollars in limbo, Variety reports that the studios are confident Chinese and US officials will resolve the tax dispute, with some insiders suggesting a solution could be reached by the end of the summer.