In the news: Apple pays back taxes in China, Dongfeng Nissan gets fined US$19.2 million for price fixing and China clarifies SOE reform

Apple unit underpaid 2013 China taxes

Apple's China unit underpaid its 2013 taxes by Rmb452 million (US$71 million), according to a Ministry of Finance report dated September 9. It said Apple Computer Trading (Shanghai) understated its revenues by Rmb8.8 billion and its costs by Rmb3.4 billion, and overstated its profits by Rmb5.4 billion. It also said the subsidiary had already repaid the taxes as well as Rmb65 million in late fees. The investigation highlights the government's increasing tough stance on taxation. The crackdown came into focus at the end of last year when Microsoft was charged with US$140 million for evasion. The seriousness of the drive is reflected in a series of rules issued in the past few years to cover areas as diverse as SPVs and offshore entities, resident enterprises and cost sharing agreements.

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Dongfeng Nissan fined for AML violations

The NDRC has fined Nissan Motor's joint venture in China a sum of US$19.2 million for antitrust violations related to the fixing of prices at its Guangdong dealerships, said officials. The penalty imposed on the alliance with Dongfeng Motor, China's second-largest carmaker, is lower than the Rmb350 million (US$54.8 million) levied on Daimler's Mercedes-Benz in Jiangsu in April and the Rmb250 million (US$39.1 million) slapped on Audi. It is, however, higher than Chrysler's Rmb31.6 million (US$5 million) fine last year. While some Western media outlets have blamed overseas car companies' declining sales in China to local enforcement, officials don't appear to be singling them out for action. Pricing cartels fall afoul of the law in most countries, and there is no real reason why Beijing should avert its gaze. What the recent moves do signal clearly is that China isn't done sweeping out the auto stables yet. So car companies would do well to drive within the rules.

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SOE reform gets a push, and a pull

The CPC and State Council said on September 13 that state companies will be allowed to list shares publicly and take on private investors, and that should be consolidation in what it said were bloated sectors. The plan is consistent with President Xi Jinping's drive to revitalize and reform SOEs so that they can continue to play a pivotal role in the economy. Although the blueprint for change calls for more private participation, it emphasizes the party's control over the companies. Those with knowledge of the government's thinking have listed the energy, resources and telecom sectors as marked for mergers. Private companies have, in general, higher debt-to-asset ratios and average returns on equity than state firms. China wants to maximize returns for its SOEs, and it doesn't plan to relinquish control. This was evident even when it first called for SOE reform a year ago. The stake sold in Sinopec Marketing, China Huarong Asset Management and Shanghai Jin Jiang International Hotels were only 29.99%, 20.98% and 12.4%, respectively, with each involving a consortium of investors, making little difference to overall ownership.

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