"Life of Pi" was the first imported film in China to be affected by a new 2 percent value added tax for its box office revenue. [China.org.cn]

The Motion Picture Association of America (MPAA) announced on August 13 that the dust between the Hollywood studios and China Film Group will finally settle as the Group promised to pay back the studios in full the money it owes them, the Hollywood Reporter stated.

As previously reported, China Film Group withheld payment of about US$200 million as a new 2 percent value added tax had just started its test run. China Film Group thought the newly applied tax rate should be paid by the foreign studios. The studios did not agree.

According to the agreement reached last year by parties from both China and the United States, Hollywood studios can collect a 25 percent share from the box office revenues. Yet the newly added tax will cost them money.

Take "Life of Pi" as an example, grossing US$91 million in Chinese revenue alone. According to the previous agreement, 20th Century Fox Film Corporation should take away US$23 million, but the extra value added tax will cost them US$2 million. "Pi," Sony/Columbia's "Skyfall," Paramount Pictures' "G.I. Joe: Retaliation" and Warner Bros' "Pacific Rim" all face the same problem.

"The MPAA understands that China Film Group stopped its payments owed to the MPAA studios in China pending a resolution of the application of a new value-added tax due to be implemented nationwide as of Aug. 1. We are pleased to hear that the Chinese government has addressed the matter and all money due will be paid in full. It is our understanding that the payment process has recommenced," MPAA Chairman and CEO Christopher Dodd said in a statement.

"The U.S. and Chinese film industries enjoy a close and productive relationship and the MPAA is grateful to our counterpart, the State Administration of Press, Publication, Radio, Film and Television for their commitment in resolving this matter favorably. We look forward to further strengthening our ties with SAPPRFT as the Chinese screen community continues its path to becoming a global powerhouse in the international entertainment market," he continued.

The Hollywood studios have not received their shares of China's box office revenue since fall of last year. The State Administration of Press, Publication, Radio, Film and Television is now in talks with China's tax bureau in a bid to waive the 2 percent tax on theater tickets. The issue will be further discussed at the next meeting of the State Council chaired by Premier Li Keqiang.

China has become the second largest film market in the world, following the U.S., but Hollywood's road to China is not easy. China has set quota for imported films and will not allow foreign films to be screened over certain time periods, as well as prioritizes Chinese domestic films in terms of show time arrangements. These protective guidelines have been a thorn in the eyes of the American film industry.

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