The difference is that tax shelters usually aren't used to deprive your staff of salary, they're used to deprive the government of tax revenue. This is both.

Except that it doesn't work for avoiding taxes. If you charge ten million in internal advertising to an account, you're advertising division is still making a profit.

There are lots of other tricks for avoiding taxes, but what is described is purely for screwing the artists.

But you don't charge your own company, you buy services from a seemingly external company (that is actually operated by you). That's one way to generate a loss while actually just moving money around.

You generate a loss for one company, but income for another company. I don't see how this avoids taxes, just moves them from one entity to another. (so if the second entity is in a tax-friendly jurisdiction, it's obvious how that helps, but it doesn't simply generate a loss and that's the end of the story.)

But then the shell company could just be collapsed, and all its debt obligations (which is really to yourself) could be all moot. Thus, you avoid paying tax like that as well?

Such tax loopholes might exist (I am not a tax person), but generally the answer is no:

If you take a loan, and don't return it for whatever reason (e.g. because the person to whom you owe it has died and has no heirs; or the bank that gave you the loan decides not to collect), the loan you previously received is instantly converted for tax purposes into your income, and you have to pay income tax on that.

When you've got thousands of people willing to take your staff's place, there's no reason to pay them well.

I don't know many talented directors. I know a few bumblers, but perhaps that's because I don't live in CA?

Don't know if you're joking, but I don't think the directors are getting shafted by this creative bookkeeping.

I thought the article was clear on this point. The director was paid 5% of net. Net was negative -- the director got shafted.

The directors I know are unlikely getting shafted by this method, as their portfolios consist of mainly live births, cattle auctions, and high school sports. Still Art Institute graduates though.

No, the article wasn't clear on the point. It gave an example of one specific director, Scott Derrickson, getting shafted. No offense to Scott, but as a casual movie watcher, I haven't heard of him. And if casual movie watchers haven't heard of him, he can be easily replaced, and therefore easily shafted.