Second to the United States, China is the world's largest film market. And while American movies have been doing well there, even the ones we thought were awful, U.S. studios have yet to see a penny of many recent films' profits. Sources told The Hollywood Reporter that China Film group has stopped paying U.S. studios their 25 percent cut of box office profits as they dispute a two percent value-added tax.
Last year an agreement between Joe Biden and China's President Xi Jinping made it easier for U.S. studios to make a profit in China by upping the studios' cut from 13-17 percent to 25 percent. Taking this new tax out of that 25 percent, which China Film Group originally agreed not to do, would go against that agreement, according to studios. “Unfortunately it does not surprise me that China has come up with another creative way to cut into that revenue payment,” former U.S. Trade Representative Ronald Kirk told Variety. “It fits the pattern of their creative accounting at times…there are a number of ways that China has frustrated American interests.”
At the same time, with China set to be the main global movie market, studios can't just pull their films. An anonymous insider told THR that an agreement might be reached soon, but this thing has been going on for a while — Fox still hasn't been paid for Life of Pi, which opened in China last November. In fact, THR estimates that the six major studios are expecting checks for tens of millions of dollars once this whole thing gets hashed out. Based on the 25 percent agreement, revenue withheld from Chinese box office grosses breaks down something like this:
- Over $31 million to Warner Bros. for Man of Steel, The Hobbit: An Unexpected Journey and Jack the Giant Slayer
- $23 million to Sony for Skyfall and After Earth
- $30 million to Paramount for Into Darkness, G.I. Joe: Retaliation and Jack Reacher
- $30 million to Disney, just for Iron Man 3
Considering the disastrously poor performance of domestic flops like After Earth, and Disney's The Lone Ranger, those overseas paychecks must sound pretty good to the studios right about now.