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A Tax-Efficient Model for Valuing Chinese Equity Transfers
The authors examine recent guidance on tax-free restructuring and mergers and acquisitions in China, saying a 2009 notice has made such transactions a significant challenge. They propose a China-specific approach to valuation, illustrated through two examples.
Recent Chinese regulatory changes, most notably Notice 698, have made it far more challenging for companies to engage in tax-free restructuring and mergers and acquisitions.1 This obviously affects multinationals that are selling off, directly or indirectly, their Chinese companies.
However, these changes go further and potentially impact even multinationals who are buyers. The authors have seen more than one instance of a multinational buying a foreign company with Chinese entities becoming subject to potential exposure when the seller refuses to report the transaction for Chinese tax purposes.
Thus, Notice 698 and related developments have become perhaps the most important tax topic in China. In the absence of a taxpayer-prepared valuation, Chinese tax authorities increasingly are conducting their own valuations to assess the tax on capital gains that they assert is due on such transactions. In some cases, they are asserting that the foreign entity has no value and are taxing the entire transaction in China.2 Consequently, when companies are not proactive in their tax valuation position in conducting due diligence upon acquisition or as they engage in restructuring, they face heightened potential capital gains exposure. This article will highlight recent Chinese cases relating to equity valuations, outline a China-specific valuation approach from common financial valuation concepts, and provide context to these tax valuations through hypothetical related-party and third-party examples.
To read entire article, please click here (starts on page 16).
Source: Baker & McKenzie - GAI
For more information or to contact Baker & McKenzie, please click here.
The Circuitous Path to Electrification of China’s Automotive Industry
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China-EV.org Blog: Is the U.S. government sending electric vehicle technology to China? Sort of.
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China Automotive Monthly: Executive Summary (January, 2012)
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Indian Auto Components Industry: Brief Introduction (and downloadable Report)
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Indian Automobile Industry: Brief Introduction (and downloadable Report)
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Philip Kotler sees India emerging as a leader in car manufacturing
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India: Duty hike will hurt automotive industry
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India: Carmakers likely to speed up diesel engine plans
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India: Budget 2012: Auto industry welcomes incentives to promote hybrid vehicles
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India: The Effects of Fuel Subsidies - Policy reform underpins fuel duel
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South Korea: Auto exports to EU rise despite shrinking market
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South Korea: Will FTA boost U.S. car sales here?
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Chinese auto firms buy into European markets
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Thailand: Big Japanese firms plan to increase investment
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Thailand: Top 10 in carmaking within sight
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Indonesia's Car Market Takes the Fast Lane
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Japanese Auto Industry in Japan
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Chinese Lessons: Avoiding the Liquidity Trap
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India: Monthly Economic Report
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Korea will emerge as hub of FTAs
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Japan: Edano urges China to respect certified trademark rights
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A Tax-Efficient Model for Valuing Chinese Equity Transfers
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Shining the spotlight on Malaysia's LED industry
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Using Offshore RMB Funds to Invest in Real Estate and Other Assets in China: Further Legal Rules Announced
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India Inc needs to improve on executive pay governance
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Taking Vietnam’s economy to the next level
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Japanese universities lag U.S., Britain in combined academic opinion poll
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Hong Kong: Amendment to the General Holidays Ordinance and the Employment Ordinance
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New Beijing airport projected to be world’s busiest
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Shanghai Planning to Extend Expat Visas
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Expats Flock to India Seeking Jobs, Excitement
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