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Nov 13

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Higher Taxes = Free Theater Admissions?

What does a theater company do when its very existence is threatened by a government’s tax policies? It gives its performances away for free.  Well, kind of free.

Reeling from austerity measures put in place to correct for the damage caused by the government’s runaway deficit spending, Spain raised its standard VAT, or Value-Added Tax, from 18% to 21% in September 2012. The tax affects items like beer, wine, clothing, and theater tickets. Fearing that this price increase could mean the end for his 300 seat municipal theater in Bescanó, Spain, the director, Quim Marcé , applied his creativity to the problem. Now instead of selling theater admission tickets, he is selling carrots and throwing in the theatrical performances for free. By selling carrots instead of admission tickets for 13 Euros (about $16 USD), the theater is taking the position that they are only required to pay the 4% VAT levied on most food and drink. But those are some pretty expensive carrots.

Some are calling this a brilliant act of resistance – a sign of the times in Spain. But while Marcé claims to have vetted this practice with a lawyer, others are simply calling it tax evasion. As a basis for comparison, U.S. Generally Accepted Accounting Principles (GAAP) would not permit this approach to revenue recognition and would instead require an allocation among the bundled items or services.

In addition, if one business evades the tax policy, it creates that much more pressure for other businesses to bail out the government. If it is allowed, others will likely follow suit. Imagine car dealers selling potatoes for 50,000 Euros and giving away free cars.

The controversy surrounding the issue has awarded the theater a great deal of free publicity and it’s anticipating many sold-out performances in the near future.  Regardless of the ultimate tax treatment, it appears Marcé has accomplished his ultimate goal to save the theater – at least for now.

About the author

Maksim Dvorkin

Maksim Dvorkin is a consultant at Fulcrum Inquiry, an accounting, finance and economic consulting firm specializing in complex litigation, forensic investigations and appraisal issues across a broad spectrum of industries.

Permanent link to this article: http://betweenthenumbers.net/2012/11/higher-taxes-free-theater-admissions/

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