In the news: Chinese companies abroad get taxed, the PBOC frees retail exchange rate and BAIC Motor plans HK IPO

Tax rules tightened

The State Administration of Taxation has issued a new regulation that requires greater disclosure by PRC companies of their overseas investments and income. Aimed at boosting tax collection compliance and strengthening risk management, the new law signals a move towards stricter tax collection and enforcement for Chinese companies investing abroad. Chinese companies will be required to disclose more information on foreign entities in which they have a controlling stake of 50% or more, either directly or indirectly, when filing their annual tax returns. Entities include companies in Hong Kong, the British Virgin Islands, the US and UK.

Source:
South China Morning Post

The level of detail required for tax submissions is significantly higher under the new rules. Information must be disclosed on any overseas PRC-controlled companies, including the place of establishment, shareholder details and profit distribution. Another regulatory change is the requirement to report any deal involving a 10% shareholding change in a foreign entity in the quarter the deal took place, from only being required to report on overseas investments once a year in the annual tax returns. Any change in a company's direct or indirect shareholding of a foreign firm above or below 10% must also be reported that quarter. Penalties for failing to disclose can range from 50% to 500% of the unpaid tax.

More from CLP:
Announcement on the Issue of Individual Income Tax on Sole/Family Proprietorships, Wholly Individually-owned Enterprises and Partnerships
Announcement on Value-added Tax Issues Relevant to the Asset Restructuring of Taxpayers
Announcement on the Issue Concerning the Recognition of the Tax-resident Status When Implementing the «Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income»
Announcement on Issues Relevant to the Levy of Enterprise Income Tax on the Provision of Services in China by Personnel Assigned by Non-tax-resident Enterprises
Announcement on the Issue of Enterprise Income Tax Treatment in Respect of the Hybrid Investments of Enterprises


China frees retail renminbi exchange rate

The People's Bank of China (PBOC) has allowed banks to freely set their own exchange rates for the renminbi against the dollar in over-the-counter transactions in line with supply and demand without any restrictions. This marks an important step forward in exchange rate liberalisation and signals that the PBOC believes the renminbi has now reached equilibrium. The renminbi's equilibrium allows the central bank to gradually free the exchange rate without concerns of excessive volatility. Previously, banks were required to price the renminbi/dollar rate they offered retail clients within a 3% range of the central bank's midpoint.

Source:
Reuters

Chinese companies are happy with this move. The new rules do not apply to the main rate in the interbank market, which is controlled by a daily-set midpoint by the central bank (the fluctuation limit has been loosened up to 2% in March, however). Retailing provides an important indicator for renminbi-dollar demand and supply, and its exchange rates will also have an influence on the interbank rates, as it helps the banks discover market-oriented rates. A slow but sure progress towards a market-oriented exchange rate for the renminbi is evident as China seeks to increase the use of its currency in global trade and investment to reduce dependence on the US dollar. The liberalisation also decreases the need for China to amass dollar reserves in order to manage the exchange rate. What's next in reforms for the forex market remains to be seen.

More from CLP:
Several Opinions on Further Promoting the Healthy Development of Capital Markets
Interview: Keys to success
Implementing Rules for Securities Trading by Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors


BAIC Motor plans HK IPO

State-controlled BAIC Motor, partly owned by German group Daimler, is preparing to raise about US$2 billion (Rmb12.4 billion) in a Hong Kong IPO before the end of the year. This marks the potentially largest listing by a Chinese car maker. It has submitted its draft listing prospectus to the HKSE last week – the first step to getting listing approval from the exchange. Its IPO funds will go toward its US$5.39 billion (Rmb33.2 billion) expansion plan as China's rising demand for luxury cars boosts the company's sales. If approved, BAIC Motor's IPO will be Hong Kong's largest this year following Li Kashing's Power Assets Holdings' US$3.11 billion (Rmb19.3 billion) IPO in January.

Source:
The Wall Street Journal

The funds generated from the IPO could help BAIC Motor increase market share in China's highly-competitive automobile market through acquisitions and production expansion. Daimler bought a 12% stake in BAIC Motor in November for US$854 million (Rmb5.29 billion) and the two have formed a joint venture called Beijing Benz Automotive. Over two-thirds of the IPO funds will be used for car production at this JV. Despite a cooling economy, China's automotive market is expanding – it will be interesting to see where the increasing sales and auto loans (Volkswagen is issuing Rmb800 million in asset-backed securities in China) will take this market.

More from CLP:
Circular on the Policy of Levying Securities (Stock) Transaction Stamp Duty on the Transfer of Preference Shares
Measures for the Administration of the Pilot Project for Preference Shares
IPO reform not going as planned
Measures for Strengthening the Regulation of Offerings of New Shares