Vancouver: Unless federal Finance Minister Paul Martin or Revenue Minister Herb Dhaliwal intercede in Revenue Canada’s hard-line approach to taxing foreign actors, the first big casualty will likely be Disney’s us$100-million feature Mission to Mars.

According to b.c. industry sources, Disney has threatened to pull the feature and other future projects budgeted for Canada because RevCan now requires foreign actors to file complete tax returns if they have worked in Canada at all. Mars is scheduled to begin building its sets at Burnaby’s Bridge Studios this month for a summertime shoot.

Fortunately, the final decision by Disney has been delayed two weeks because of a change in director, a reprieve during which b.c. and Ontario delegates were scheduled to meet Jan. 22 with the ministries of revenue and finance to persuade government that much is to be lost.

In b.c., 80% of the industry is fueled by u.s. service production. Ontario’s industry is made up of a fast-growing 47% foreign content and in Quebec it’s up from 25% in ’97 to closer to 35% last year.

Along with an unhappy Disney, Hearst has apparently pulled three mows from Vancouver because of the uncertainty of the tax situation in Canada.

‘We import dollars to pay Canadians,’ says service producer George Chapman, who acts as spokesman for the b.c. delegates. ‘We are not a cost but a benefit. As a result we should be afforded consideration [similar to the high-tech industries].’

According to Chapman, delegates want Ottawa to defer any changes regarding foreign actors and tax enforcement until Jan. 1, 2000. That will give the non-Canadian industry – which may be represented by the hastily formed Canadian Production Service Industries Association based in Vancouver – a year to offer alternatives and solutions that won’t chase away the u.s. business.

But without a grace period, RevCan is committed to enforcing the letter of the tax law, maintains RevCan spokesperson Colette Gentes-Hawn.

‘This is not a new tax,’ Gentes-Hawn stresses, explaining that after two years of discussion RevCan has simply decided to be more rigorous with existing tax law. ‘We saw in the industry a lot of non-compliance – taxes that should be paid to Canada but aren’t paid to Canada.’ RevCan could not provide a breakdown of lost taxes.

There wouldn’t be a problem, she adds, if the State of California – where most big-ticket stars reside – would honor Canada-u.s. taxation treaties and allow for tax credits at home for income earned elsewhere, like Canada.

Top-end marginal tax rates (paid by high wage earners) are similar in Canada and the u.s., Gentes-Hawn maintains, and most u.s. states and the u.s. Internal Revenue Service already credit actors for tax paid elsewhere. In the new scenario, she explains, u.s. actors have no liability to the irs for work paid for and taxed in Canada.

But for Californians, the result is double taxation – a compelling reason to stay home.

‘The concerns are understandable, but it’s a matter of fairness,’ says Gentes-Hawn. ‘The department has no choice.’

RevCan, in other words, does not have the political authority to change policy and won’t without guidance from cabinet.

Chapman and his colleagues in the b.c. delegation insist that without political interference, RevCan will lose millions of dollars and the Canadian service industry will be undone.

To date, non-Canadian actors have paid a 15% withholding tax, which is deducted at source, on short-term work inside Canadian borders. (Actors on long-term series which shoot for most of a calendar year have always filed Canadian returns.)

Now, any non-Canadian actors with any work in Canada are required to file a full return, and depending on their gross earnings, pay up to 55% in tax. To protect the actors against double taxation, u.s. studios, broadcasters and producers will have to indemnify against the lost tax money, which will increase the cost of budgets and make Canada less of a deal.

b.c. delegates predict the increased taxation will force a 50% reduction in service production that will have serious trickle-down effects.

For example, North Vancouver-based payroll company TVD Televector Enterprises – which handles production accounting from coast to coast – estimates a loss of about $35 million in taxes to RevCan from tvd’s payroll ledgers alone, not including the unemployment and other social welfare costs associated with the potential and dramatic reduction in employment.

California, meanwhile, has no incentive to change its state tax policies, especially when growing runaway production to Canada is a threat to the state’s entertainment industry. So the spotlight falls on Canadian entertainment lawyers and accountants to come up with a solution.

The delegates meetings in Ottawa Jan. 22 fell in the middle of Playback’s production cycle. However, at press time, there were a number of options being considered that could let the government save face, appear not to be beholden to the demands of California business interests and step up enforcement without scaring off the u.s. industry.

* One solution is to treat income taxation for foreign actors in the same way gst is handled. The goods and services tax, for example, is waived for recorded performances made in Canada but marketed elsewhere. Delegates will argue that actors visit Canada to make ‘recorded performances’ in u.s.-based products that will generate taxes at the box office – the so-called ‘point of exploitation.’

* Another solution is to review the model of export-based manufacturing.

Some products that are made in Canada but are ultimately destined for other markets require components that are imported. Because the elements only enter Canada for the manufacturing process, they are duty-free. The same argument can be made for actors in a film or television production.

* A third solution, less likely to impress the politicians, is a refinement of how an actor is paid. Sylvester Stallone, for example, will come to Vancouver to shoot the cop drama Detox this month. Delegates may argue that Stallone’s estimated $20-million fee may be broken down into a $500,000 acting fee completed in Canada and a $19.5-million fee paid in California for his brand-name appeal.