“My agent is a genius! I got net points on Grosse Pointe Blank, and gross points on The Net!”
Yes, that’s all correct. In fact, companies that are large enough attach schedules to their tax return filings that explain the difference between the books (GAAP, usually, though IFRS is now allowed by the SEC) and the tax return.
I think your post gives an incorrect impression that in the US few expenses can be deducted from a corporation’s income to establish a base for taxes. The fact is that almost all expenses can be deducted with a few specific exceptions.
These aren’t the points you’re looking for. Move along.
Well considering creative accounting has been an open secret for decades among most everyone, any actor who settles for net points is either in such a weak bargaining position that that’s all he or she can get, or they’re fools, and nowadays a fool and his money don’t even get to meet and shake hands.
Thanks for all the insights, everyone.
But you should remember that most studios (I think all of them) are part of publicly traded companies. As such, investors like to see that they are profitable. So really, they do show profits on movies. Probably most of the time.
Joe Straczynski says he’s never received a dime for Babylon 5 beyond his writing and directing salaries, because WB wrote off all kinds of things - including failed movies shot on other continents - against the revenues.
Cases like Donald Sutherland and Animal House are rare. Everyone in the industry gets as much as they can up front and doesn’t let points sway them.
This is often called transfer pricing, and is very important for businesses that have divisions supporting other divisions.
My company has a hardware manufacturing arm and a maintenance arm. Maintenance provides the technical support during warranty periods, and charges back to Manufacturing, so that both lines of business have financials that accurately match up cost to the revenues that are supported by the cost. Manufacturing gets the revenue for the product sale (including warranty), so Manufacturing should get the cost as well, but they don’t need to set up a warranty business separate from the Maintenance people.
There is a difference in tax accounting and GAAP accounting. Most companies account for their income both ways. Further, as mentioned earlier, the specific terms of these contracts may specify some accounting methodology other than GAAP accounting.
Additionally, a big issue on these types of contracts is that they are manipulating the income statement by not treating transactions with affiliates on an arms length basis.
This. Winston Groom went on about getting screwed on Forrest Gump but it wasn’t the studio that did it, it was his agent who didn’t make it clear to him that he didn’t have the clout to get points of the gross like Tom Hanks.