Comment by jasode
9 hours ago
>This works because a movie is not a separate accounting entity.
Each movie is set up as a separate legal business entity (LLC). That's the SPV (special purpose vehicle). https://www.google.com/search?q=each+hollywood+movie+is+a+se...
There's also a separate LLC for the parent production company. The production company LLC can also send invoices to the individual movie LLC for services. People can get creative with production companies "overcharging" for various expenses back to the movie's LLC but whatever creative accounting they want to do still needs to ultimately satisfy IRS scrutiny if there's an audit. There are entertainment attorneys that specialize in movie LLCs.
> whatever creative accounting they want to do still needs to ultimately satisfy IRS scrutiny if there's an audit.
Well, yes, but avoiding taxes is not the point of "Hollywood Accounting", rather avoiding paying actors.
The IRS can collect taxes from whichever business entity makes a profit, but, critically, actors cannot. They signed a deal with one entity, and are only payed a share of net profits if that one particular entity makes a profit.
Hollywood Accounting, then, is the process of shifting costs around so that the legal entity responsible for paying the actors never makes a profit.
The SPVs never own anything and never have any expertise in anything. So they have to pay the parent company for a wide range of services, from advertising and marketing to distribution to prop and equipment rental. That makes it easy to shift costs into the SPV as necessary.
Why would that matter if it's all still a subsidiary of Apple/Amazon/Disney/Comcast/Netflix/Sony?
The relevant taxing authorities would be concerned with the parent companies' financials, not the subsidiaries. Moving money from right hand to left hand doesn't change one's tax liabilities.
"Hollywood accounting" only refers to civil disputes due to insufficiently defined contracts between two businesses (usually actors and producers).
The benefit of “Hollywood accounting” isn’t necessarily tax avoidance; that’s what the tax credits are for. Rather, “Hollywood accounting” provides a way to avoid paying profit-based compensation.