In necessary move, court shows zero tolerance for 'dual contracts' in entertainment
Published: Mar 19, 2024 11:06 PM
tax evasion Photo: VCG

tax evasion Photo: VCG

China's supreme court has criminalized the signing of "dual contracts," known as "yin-yang contracts," and has clarified a zero tolerance position on tax evasion schemes, including the shocking tax fraud scandals involving celebrities in the entertainment industry.

The judicial interpretation issued Monday by the Supreme People's Court and the Supreme People's Procuratorate clearly specified for the first time that signing of "dual contracts" is a means of tax evasion, providing a legal basis for judicial authorities to pursue such tax evasion cases in the future.

"Dual contracts" is a practice where one contract sets out an actor's real earnings, and another contract details a lower figure, with the latter submitted to the tax authorities.

According to the judicial interpretation, taxpayers who make false tax declarations by using schemes like "dual contracts" to conceal income and assets or attribute income and assets under other names should be considered as "using deception or concealment" stipulated in Article 201 of the Criminal Law.

It also clarified sentencing standards for tax-related crimes and defined new methods of tax evasion that would be considered criminal offenses under the law. 

For example, taxpayers who use deception or concealment to falsely declare taxes or fail to declare taxes, resulting in tax evasion accounting for over 10 percent of taxes payable, shall be sentenced to imprisonment for up to three years or detention, in addition to fines; for tax evasion accounting for over 30 percent of taxes payable, the punishment shall be imprisonment for more than three years but less than seven years, along with fines.

In recent years, there have been frequent cases of tax dodging through fabricating false tax bases, especially in the entertainment industry. Several cases of tax evasion through signing "dual contracts" or similar methods have shocked the public, such as those involving actresses Fan Bingbing and Zheng Shuang, who were fined 884 million yuan ($129 million) and 299 million yuan respectively for evading taxes.

In early June 2018, media reported that during the filming of the movie Air Strike, Fan received an actual remuneration of 30 million yuan, of which only 10 million yuan had been declared. The remaining 20 million yuan was concealed through split contracts, evading 6.18 million yuan in personal income tax and underpaying business tax and surcharges by 1.12 million yuan, totaling 7.3 million yuan. 

Similarly, in 2021, Zheng received 160 million yuan to star in the TV drama A Chinese Ghost Story, but evaded taxes by signing fake contracts and submitting counterfeit documents to the tax authority, according to the Shanghai tax authority.

As public figures and high-income earners, celebrities in the entertainment industry are expected to set an example by paying taxes in accordance with the law and contribute to society. Furthermore, taxation serves the people and should be used for the people. Paying taxes in accordance with the law is not only an individual's obligation to society but also a duty that every citizen must fulfill.

The issuance of the judicial interpretation, explicitly listing the signing of "dual contracts" as a means of tax evasion, reflects the determination of relevant departments to have a "zero tolerance" attitude toward this crime. 

It also demonstrates a commitment to strengthen the standardized management of remuneration for performing artists, enhance industry regulation and education, and promote the healthy development of the industry.

Saying no to "dual contracts" is conducive to establishing fairness and justice in market rules, which is a common aspiration and trend. Before the law, everyone is equal. For every performing artist, regardless of their past fame or current success, they must lead by example, comply with laws and regulations and fulfill their tax obligations conscientiously.

The author is a reporter with the Global Times.