China Sets Cap on Movie-Star Pay, Targets ‘Yin-Yang’ Tax Dodge

(Bloomberg) -- Some Chinese celebrities may have to rethink their extravagant lifestyles.

The Communist Party’s Central Publicity Department and four other government departments issued a directive on Wednesday calling for an end to “unreasonable pay” and for better oversight of “yin-yang contracts” used to evade taxes, the official Xinhua News Agency reported.

The use of special contracts to evade taxes sparked social media outrage earlier this month when a former TV host posted documents online he claimed show that Fan Bingbing, one of the country’s best-paid performers, had used them. The State Administration of Taxation has said it is investigating the actress’s studio. Concerns that the probe may widen have caused a slump in shares of film-making companies. Fan has denied any wrongdoing.

Under the directive reported Wednesday, compensation to performers must not exceed 40 percent of total production cost. Nor can leading actors be paid more than 70 percent of total cast remuneration. The caps apply to productions from films and TV dramas to variety shows and digital-only series.

In “yin-yang” contracts, a performer makes two agreements: one that reflects a smaller payment for tax purposes, and another that remains outside the record used for taxation.

Extravagant pay and tax evasion have fueled “money worship” and twisted social values, the directive said. The industry should put “social benefit” first, it said.

To contact Bloomberg News staff for this story: Jing Yang de Morel in Shanghai at jyang543@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Dave McCombs

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