Beginning in 2012, China started trial tax reforms in Shanghai to reduce the burden on companies in transport and service sectors, including movie production and distribution, by replacing a business tax with a value-added tax, which has a much lower rate. The measure was then expanded to 10 other regions, including Beijing, where China Film Group Corp is based.

The Chinese film production and distribution company was preparing for an initial public offering and was especially sensitive to any change in its profitability, so it negotiated with Hollywood studios, asking them to pay the 2 percent value-added tax alone.

Based on its success, the Chinese government announced in April it would expand the tax reform nationwide. At the same time, the dispute between Hollywood and the distributor went public and intensified, as China Film Group stopped paying Hollywood movie companies.

According to different sources, the money owed was between $150 million and $200 million. Hollywood studios started intensive lobbying in the US and China.

The SAPPRFT, which is seen as China's movie industry on the global stage, had been trying to win over tax authorities, but officials said they could not give preferential treatment to a particular industry, sources said. The dispute was finally submitted to top levels of the Chinese government and ended with a favorable decision for the administration and the Hollywood studios.

Janet Yang, a Chinese-American producer who helped major American studios open the doors to China in the 1980s and is regarded as one of the most powerful women in Hollywood, applauded the end of the deadlock.

She said the dispute would not hurt the long-term cooperation between Hollywood studios and China Film Group. But, she cautioned, both sides are big players in the industry and cannot afford to lose each other, so they should be more flexible and open in their dealings in the future.

China is the second-largest movie market in the world with a box office of about $1.79 billion in the first six months of 2013 - 36 percent higher than the same period last year. It is also one of the most important markets for Hollywood studios.

According to Chinese rules, if a movie qualifies as a Sino-foreign joint production, the foreign partner gets 43 percent of the box office, instead of 25 percent. To qualify, one third of the investment must come from Chinese companies and at least one main character has to be played by a Chinese actor.

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