Tuesday, September 28, 2010

PEU's Mostly Ignore Chinese Tax

Compliance Week reported:

Chinese tax authorities surprised Western companies last December with a new tax law aimed squarely at a standard legal mechanism to do business in China, the offshore holding company.

Deals (sales between offshore holding companies) that were once simple and tax-free must now be logged with Chinese authorities—and any gains could be taxed at a 10 percent rate.

Companies have found a surprisingly successful—yet potentially risky—strategy to comply with the law: pretend it’s not there. 
The Carlyle Group paid $25 million on gains in the sale of Yangzhou Chengde Steel Tube.  The Chinese drafted the law in December 2009.  It's retroactive to January 1, 2008. 

Oddly, this lack of clarity hasn't impeded private equity underwriter's (PEU's) China aspirations.  PEU's understand the need for huilu, baksheesh, payola.