In the past, many controversies overshadowed the production process of The Hobbit, and these controversies did not cease after the release of the first two films. After the release of The Hobbit: Desolation of Smaug, unions claim that Warner Bros pays almost no company tax, despite the overwhelming box office sales.
Source: Southland times (Newspaper). Winter, Mark 1958- :Lots of Unexpected Journeys…
In order to keep the production of The Hobbit in New Zealand, the NZ government changed employment laws and granted tax breaks of NZ$67 million to Warner Bros. in 2010 after director Sir Peter Jackson warned The Hobbit franchise could be moved to countries where it was cheaper to film. By the beginning of 2014, Warner Bros. received almost NZ$100 million in taxpayer grants. As a consequence of these changes, the employment of 3000 people were secured during the production of The Hobbit trilogy. Polls revealed that, among the population of New Zealand, many backed these tax breaks if the films return more than that to the local economy. It is is believed that these ‘film incentives’ benefit New Zealand with tourism being one benefit. In 2013, retailers, tourism operators, the hospitality industry, and the economy benefited from 2.7 million overseas visitors travelling to New Zealand. Tourism New Zealand estimates that an extra of 114,112 holiday makers from abroad spent $NZ365 million in 2013.
Nevertheless, various experts argue that the population had to suffer as a consequence of the Hobbit trilogy. Bill Rosenberg, an economist for New Zealand’s Council of Trade Unions, now claims that “it appeared that the Warner Bros subsidiary has been deliberately structured to avoid making profits and therefore avoid paying tax in New Zealand on the large profits from the movies.” The Hobbit film production company, 3 Foot 7 Limited, a subsidiary of Warner Bros, paid an income tax of less than one per cent. By March 2013, 3 Foot 7 paid just $71,000 in income tax, despite declaring profits of NZ$44.6 million. The regular statutory rate would have been 28 per cent, or around NZ$12.5 million. In other words, New Zealanders had to pay more for government services and benefits. David Clark, Labour’s revenue spokesman, said that “Every company that operates in New Zealand should pay its fair share of tax. It’s the IRD’s role to investigate if appropriate.”
An unnamed tax expert, however, claims that 3 Foot 7 Limited would eventually end up paying its full rate of tax on profits in New Zealand after the release of all three installments.
