Withthe recent focus on Irish tax treatments and investigation into the tax profile of a well-known high-tech corporation, reviewing tax structures has become a hot topic. Nobody wants to pay more taxes than is legally required. However, the line between tax avoidance and evasion remains slim.
Private equity investors frequently review tax planning when structuring a deal, and then move on to the real business of ensuring/monitoring asset performance, trusting external advisers to keep them updated on changes. However, this “build and forget” model may not be as sound as many private equity investors assume. When changes in tax enforcement patterns occur, legal ambiguity and conflict of interest may delay warnings.
For private equity investors into China, this issue needs to be reviewed in light of the State Administration of Taxation’s (SAT) recent issuance of its Opinion on Implementing the Dividends Provision Under the Tax Arrangement Between Mainland China and Hong Kong in Cases Involving Beneficial Ownership (Circular 165) and other pronouncements made in the past few years.
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Simon Luk is a partner and chairman of Asia practice at Winston & Strawn in Hong Kong. He can be contacted on +852 2292 2000 or by email at sluk@winston.com
Mark Jacobsen is a registered foreign lawyer (California, USA) at Winston & Strawn in Hong Kong. He can be contacted on +852 2292 2000 or by email at mjacobsen@winston.com
