Bingbing Fan’s scandal has passed, and the news headlines about her have been replaced by other entertainment news.

On 15^th October, Fan was photographed coming out of a special access at the Beijing Capital International airport. She left without expression. No fans welcomed her. She has vanished for three months and this is the first time she appeared in the paparazzi camera.

(Fan walked out of the airport, Picture Source: Visual China)

She was exposed by the media to tax evasion amounting to ￥884 million.

What is the concept of ￥884 million? According to the China Statistical Bureau, in 2018, the per capita disposable income of Shanghai residents was ￥64183 yuan, ranking first in China. ￥884 million means the per capita disposable income of nearly 14,000 Shanghai residents in 2018. That’s absolutely a big and horrible figure. 

But for Fan, this is all the taxes and fines she has to pay. This figure has set the highest record for the penalty for individuals tax evasion in China. The expose ignited a wildfire of panic in her team of handlers and even the whole of Chinese show business. The ripple effects of Fan’s tax evasion began to occur.

Bingbing Fan and Her “Yin-Yang contracts”

Fan is a household name in China and has had roles in several Hollywood blockbusters, such as X-Men: Days of Future Past and 355. Since 2013, Fan has been listed as the highest-paid celebrity in the Forbes China Celebrity 100 list for four years in a row after ranking in the top 10 every year since 2006.

(Fan Bingbing)

As one of the highest-paid actresses in the world , she employed a sham-dual contract system, the so-called “Yin-Yang contracts”.

Yin-Yang contracts are when one contract sets out an actor’s real earnings, and another details a lower figure, with the latter submitted to the tax authorities. Authorities receive and tax her for the latter contract, while Fan pocketed the larger sum tax-free. 

On 2^nd October, tax authorities issued a statement on Fan’s investigation results：Fan received a total of ￥30 million in the film Air Strike and only ￥10 million was declared to the tax bureau. The remaining ￥20 million came in the form of split contracts. Splitting the contract helped Fan to evade personal income tax of ￥6.18 million and underpaid business tax and additional tax of ￥1.12 million, totaling ￥7.3 million.

Therefore, for the past several months, she has made nearly ￥255 million of illegal income for herself and her team. 

（A detailed list of Fan’s tax evasion amount）

A spokesperson for the Tax Bureau announced that as a first-time offender, she would face no criminal charges if she paid all the money on time.

Finally, on October 3, Fan abruptly reappeared by issuing a grovelling apology to her family, fans and country in an official statement.

(Fan’s apology letter, Picture Source:Weibo)

In response to the penalty decision, she said, “I completely accept all the penalty decisions made according to law, after the investigation done by tax authorities. I will follow the order, try my best to overcome difficulties, raise fund, pay taxes and fines.”

For tax authorities, such practice means punishing Fan as a warning to others of Chinese show business. 

Fan’s Ripple Effects on Chinese Show business

It seems that Fan’s exile and storm is now over, but the ripple effects began to reverberate throughout Chinese show business. Fan’s scandal unleashed a deep chill in an industry that until recently had been humming along.

But industry insiders said Fan’s behavior was less than shocking: the use of these so-called Yin-Yang Contracts was widespread on Chinese show business.

“Fan was not alone in evading taxes, the big error was that she was caught. She is unlucky.” Said a filmmaker, Mark, who asked not to be identified.

Jing Zhang, an assistant who works in Chinese show business, said, “In my opinion, Fan almost took the blame of the whole industry by her own efforts, at the cost of all her reputation and achievements over the past 20 years. But the so-called “Yin-Yang contracts” are not just Fan’s. In fact, many celebrities are doing it, which is almost a hidden rule in the industry. ”

“After Fan’s scandal was exposed，entertainment companies and celebrities are getting their tax affairs in order,” said Zhang. 

Production companies canceled or postponed projects while they audit their books and negotiate what they owe in back taxes.

Moreover, celebrities have gone into hiding.

“Many guilty celebrities ostensibly said to netizen that they decided to go on vacation. In fact, they want to reduce or stop their workload so that they can deal with their “tax problems” as soon as possible. They were afraid of becoming ‘the next Fan’.” Said Zhang.

Mark smoked and said that everyone on the show business seemed to be in a state of panic. The tax authorities had issued a directive calling for all film companies to do “self-criticism” and “rectify themselves. Every filmmakers have to paid the back taxes they owed on unreported income before December 31. Those who paid up would not be fined. Starting in the new year, however, there would be heavy and random checks and those who were caught would be dealt with seriously.

The ripple effect of Fan’s scandal has become more crazy. Financing dried up as banks shied away from an industry tainted by scandal. In the month after she was engulfed in scandal, shares in publicly listed movie companies in China fell by an average of 18 percent.

Khorgos — From “Tax Haven” to “Tax Hell”

“Many celebrities are also closing the offices and companies they opened in regional tax haven,” said Zhang.

What is tax havens?

Zhang mentioned Khorgos City, located in the Xinjiang Uygur Autonomous Region Yili Kazakh Autonomous Prefecture in China. This is an important trading port in the west of China. 

 (Khorgos, Picture Source: Sina)

“The Belt and Road Initiative”(B&R) brings development opportunities to Khorgos. BRI is a global development strategy initiated and led by China’s government in 2013. The implement of B&R made Khorgos became a new special economic zone in China and Khorgos began to implement tax exemption policy. The most important thing was that it provided a “express access” for registered companies to go on the market rapidly. 

This preferential policy makes this border city rapidly become the gathering place of entertainment companies. For celebrities, it’s one of the most famous tax havens. So before Fan’s scandal was exposed, more than 1600 film and television cultural companies and celebrities’ studios were registered here. Fan also opened one of her own company here, called Khorgos Aimeishen Film and Television Culture Company. 

But in fact, these companies are only ‘shell’ companes. It means these companies doesn’t have any real business, only for financial operations. Stars always transfer revenue and profits to their companies in Khorgos for tax avoidance so that they can enjoy local tax preferences. 

Moreover, a tax official from Khorgos said, “in fact, the registered capital of many stars’ studios only have 10,000 yuan.”

After Fan’s scandal, at least 102 companies closed within six months. For example, Xiaogang Feng, Wei Zhao，Shishi Liu and a large number of other stars has closed their own entertainment companies in Khorgos.

After Fan Bingbing’s scandal, Khorgos began to adjust tax preferences. Since the authorities declared that special tax zones, which had allowed stars to pay lower taxes, were no longer legal. From “tax haven” to “tax hell”，Khorgos experienced dramatic changes in the past two years, Numerous companies have fled. Continuous chills poured down on the border town.

The original intention of the national policy is to stimulate the development of the local economy, employment and education by attracting the real economy. But the stars have turned this place into their own cash cow and tax heaven.

The Ripple Effect is Only Temporary

The stars’ high income may be the main culprit of tax evasion. They are tempted by money so that made many “Yin-Yang Contracts”. Therefore, tax authorities announced that individual stars would not be allowed to earn more than 70 percent of a production’s total wages for actors. The notice will chastise the industry for distorting social values.

However, in China, at least, The success of a film still depends on big stars. So big money, it appears, is still willing to bet on Fan and other big stars. 

“We are in the golden age of ‘Chinese Hollywood’, where the star is key,” said Mark.

（Fan’s Public Welfare Activities on Weibo）

After the scandal, Fan devoted herself to China’s public welfare. It seemed to be preparing for her comeback. Maybe after a while, no one will remember Fan’s tax evasion.