Through the Loophole

Hollywood, troubled by 3-dementia and TV tremens, has another ailment: wanderlust. In "the film capital of the world," only 27 pictures were in production last week (as against 33 a year ago). But there were 48 rolling in Italy and 13 in Mexico. "The industry," said the A.F.L.'s Hollywood Film Council, "is committing suicide by letting production go abroad."

A big reason for this is an amendment to the 1951 U.S. tax law. To lure engineers, construction workers and other skilled hands to work on economic-development programs overseas, Congress generously exempted from income taxes any U.S. citizen who spends 17 out of 18 consecutive months abroad. (Not included: Government personnel.) While the 18-month clause was not written with film folk in mind, the stars quickly discovered it.

Actor-Director Gene Kelly left the U.S. 18 months ago to make movies in Germany and England. Claudette Colbert went off to England and Italy. Clark Gable and Ava Gardner made a movie in Africa, Gregory Peck in Rome. Gary Cooper's cinemactivities took him from Samoa to Mexico and Europe. Kirk Douglas completed a film in Israel, then went to Italy.

Why? Why Not? Although most of the stars (and their studios) insisted the tax loophole had nothing to do with their travels, Alan Ladd made no bones about it. Said he: "After all, some 300,000 persons are doing the same thing, and why the motion picture players should be stigmatized is a mystery to me ... I see no reason why I should not avail myself of this exemption because it is a law."

To actors who earn $200,000 a year, the loophole saves $160,716 in taxes. Expatriates Cooper, Douglas, Peck and Ladd, who make $150,000 to $200,000 per picture, stand to earn close to $500,000 taxfree. Gene Kelly, who has already put in full time abroad, will make closer to $600,000. Not every cinemactor has stayed the limit. Robert Taylor made two films in Europe, then forsook his tax break by coming home. Errol Flynn, on the other hand, has a better reason than most for overstaying his leave: he owes the U.S. $407,839.92 in back taxes.

Matter of Costs. Aside from taxes, producers have their own reasons for making pictures overseas. Some movies (African Queen, Moulin Rouge, Roman Holiday) need authentic foreign settings. By making pictures in Europe, a few of the big producers, e.g., MGM, have put their blocked foreign currency to work. Many independent producers, finding it hard to raise money in the U.S., have stretched their dollars further abroad. And such unions as Roy Brewer's Film Council (TIME, April 27) have helped boost film costs skyhigh; labor costs overseas are anywhere from 20% to 50% below the U.S., and foreign sets and props are far cheaper.

Treasury Secretary George Humphrey has already asked the House Ways & Means Committee to correct the "many conspicuous abuses [of the tax law] by highly paid individuals." And two bills to repeal the "Hollywood clause" have been introduced. But protests have already been heard from engineering firms and mining companies. Probable solution: exempt the first $20,000 earned overseas, tax the rest at regular rates.

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